Johnson, Heather v. Bankers Life and Casualty Company
Filing
79
ORDER granting in part and denying in part 25 Motion to Dismiss; granting in part and denying in part 27 Motion for Submission of Material Outside of Pleadings. Signed by District Judge William M. Conley on 09/20/2013. (bgw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
HEATHER JOHNSON,
v.
Plaintiff,
BANKERS LIFE AND CASUALTY
COMPANY,
OPINION & ORDER
13-cv-144-wmc
Defendant.
Defendant Bankers Life and Casualty Company (“Bankers”), through its
authorized agents, sold an individual retirement annuity to plaintiff Heather Johnson and
her now-deceased husband. Plaintiff alleges that she and her husband purchased this
annuity, which replaced an existing annuity purchased from another company, because it
contained an “annuity income preservation amendment rider” which Bankers represented
would keep both the annuity and income from the annuity from affecting their
“Medicaid eligibility and spend down provisions/requirements.” When this proved to be
untrue following her husband’s death, Mrs. Johnson brought this putative class action
lawsuit against Bankers for breach of fiduciary duty, negligent and intentional
misrepresentation, civil theft pursuant to Wis. Stat. §§ 895.446 and 943.20, and
violation of Wisconsin Organized Crime Control Act (“WOCCA”), Wis. Stat. § 946.83.
Before the court is defendant’s motion to dismiss all of plaintiff’s claims. (Dkt.
#25.) For the reasons that follow, the court finds (1) Johnson has standing pursuant to
Article III to pursue her claims; (2) the complaint fails to allege a fiduciary relationship;
(3) the complaint alleges a misrepresentation with sufficient specificity to form the basis
of negligent and intentional misrepresentation claims and a civil theft claim; and (4) the
complaint fails to allege an enterprise separate from defendant to plead a WOCCA claim.
Accordingly, the court will grant defendant’s motion to dismiss plaintiff’s breach of
fiduciary duty and WOCCA claims and deny it in all other respects.
ALLEGATIONS OF FACT 1
In April 2005, Heather and Gary Johnson sold their primary residence and
purchased an annuity from Security Benefit Life Insurance Company in the amount of
approximately $144,000. Sometime after that, the Johnsons were contacted by one of
Bankers’ agents, Craig Chapp, asking them to meet with him to discuss an annuity his
company was offering to senior citizens that would protect certain assets during
retirement.
In November or December 2005, the Johnsons met with Chapp at their
condominium. During that meeting, they informed Chapp of certain health issues Mr.
Johnson was experiencing. Chapp allegedly then advised the Johnsons that “they should
take advantage of a new product offered by Bankers that would protect their assets even
if Mr. Johnson had to enter into a nursing home.” (Am. Compl. (dkt. #22) ¶ 10.) The
Amended complaint further alleges that
1
For the purposes of this motion, the court will construe all of plaintiff’s factual
allegations as true and draw all reasonable inferences in her favor. Santiago v. Walls, 599
F.3d 749, 756 (7th Cir. 2010). The court considers defendant’s motion to dismiss in
light of the amended complaint. While this motion was pending, plaintiff filed a second
amended complaint, adding a second named plaintiff and facts specific to her purchase of
the annuity at issue. (Dkt. #55.) The court will address the status of this pleading at
the September 27, 2013, hearing.
2
Chapp fraudulently represented that the annuity included a
rider entitled ‘annuity income preservation amendment rider,’
which, Mr. Chapp represented, would protect and/or exclude
the assets and/or income of the deferred annuities from
Medicaid eligibility and spend down provisions/requirements,
thereby allowing them to take full advantage of the Medicaid
and/or other governmental aid and benefits for which they
were to be eligible without having to use the assets of the
annuity to pay expenses otherwise covered by Medicaid.
(Id. at ¶ 11.)
Some two years after their meeting with Chapp, the Johnsons decided to liquidate
their previously-purchased annuity, resulting in significant penalties, and purchase the
Bankers’ annuity in the reduced amount of $132,683.72. This annuity was issued in Mr.
Johnson’s name with Mrs. Johnson named as the intended beneficiary on January 30,
2008.
(Id. at ¶ 14; Ex. A (dkt. #22-1).)
Heather Johnson alleges that she and her
husband made the decision to purchase the Bankers annuity “primarily based upon the
representations made to them by Mr. Chapp.” (Id. at ¶ 13.)
On page nine of the twenty page annuity document, which is attached to the
complaint, appears the following language:
(Id., Ex. A (dkt. #22-1) p.9.)
Mr. Johnson passed away in August 2008. Following his death, Heather Johnson
“learned that the representations made by Mr. Chapp concerning the annuity income
preservation amendment rider were false and that the annuity would not protect and/or
3
exclude the assets and/or income of the deferred annuities from Medicaid eligibility and
spend down provisions/requirements.” (Id. at ¶ 15.)
Heather Johnson seeks to represent a class of Wisconsin residents who, based
upon representations by Chapp or another Bankers’ agent, purchased Bankers annuities
that include the annuity income preservation amendment rider.
Plaintiff alleges the
following causes of action: (1) breach of fiduciary duty; (2) negligent misrepresentation;
(3) intentional misrepresentation; (4) civil theft under Wis. Stat. §§ 895.446 and 943.20;
and (5) violation of WOCCA.
PRELIMINARY MATTER
Defendant also moves for submission of material outside of the pleadings,
attaching two documents to a declaration of defendant’s counsel: (1) a purported check
from Security Benefit Life Insurance to Bankers Life and Casualty, dated January 18,
2008; and (2) a purported check from Bankers Life and Casualty Company to Heather
Johnson, dated September 22, 2008.
(Def.’s Mot. to Submit Material Outside of
Pleadings (dkt. #27); Declaration of Adam J. Kaiser, Exs. A, B (dkt. ##28-1, 28-2).) In
addition to plaintiff’s complaint, the court may consider documents to which the
complaint had referred, which are “concededly authentic” and “central to” the plaintiff’s
claim. Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009). 2
2
Defendant cites to a Seventh Circuit case, including in a parenthetical the following
quoted standard adopted by the court: “documents attached to a motion to dismiss are
considered part of the pleadings if they are referred to in the plaintiff’s complaint and are
central to his claim.” (Def.’s Mot. to Submit (dkt. #27) 1-2 (citing Wright v. Associated
Ins. Co., 29 F.3d 1244, 1248 (7th Cir. 1994)) (underlining added).) But defendant uses
4
In her amended complaint described above, plaintiff alleges that she and her
husband liquidated their previously-purchased annuity and purchased the Bankers’
annuity in the amount of $132,683.72. (Am. Compl. (dkt. #2) ¶¶ 12, 14.)
Further,
plaintiff’s damages request is at least in part related to alleged penalties paid to Security
Benefit in cashing in the previously-purchased annuity. Accordingly, the court finds that
the check from Security Benefit Life Insurance Company to the defendant in the same
amount as in the complaint is sufficient to meet the requirements for considering
documents outside of the pleadings.
As for the second check -- the one issued by Bankers to plaintiff -- the complaint
does not allege that defendant issued Johnson a check or otherwise refer to payment
under the policy.
More importantly, the issuance of the check is not “central to”
plaintiff’s claims, which concern alleged misrepresentations and at the point of sale; nor
is the check even material to the present motion to dismiss. The court will, therefore,
grant defendant’s motion to consider the check from Security Benefit to Bankers (dkt.
#28-1), but deny defendant’s motion to submit the check paid by Bankers to Heather
Johnson (dkt. #28-2).
a disjunctive “or” in stating the same standard in its brief: “[a] court may consider, in
addition to the complaint, any documents if their authenticity is not disputed by the
parties, if they are central to plaintiff’s claims, or if they are sufficiently referenced in the
complaint.” (Def.’s Mot. to Submit (dkt. #27) 1 (italics removed; underlining added).)
Whether defendant’s counsel intentionally changed the Seventh Circuit’s use of “and” to
“or,” this court will not speculate, except to note that the court will not tolerate repeated
inaccurate or strained characterizations of cases, especially in light of other citation
concerns described below.
5
OPINION
Bankers moves to dismiss this claim, arguing that (1) Johnson as a third-party
beneficiary lacks standing to pursue the present action; (2) plaintiff’s breach of fiduciary
duty claim fails as a matter of law because Bankers has no independent duty to potential
purchasers and was not in a position of trust because of the disclaimer described above;
(3) plaintiff’s breach of fiduciary duty claim is barred by the statute of limitations; (4)
the negligent and intentional misrepresentation claims and civil theft claim all fail
because they are premised on a representation about the law and/or a future event; (5)
plaintiff’s misrepresentation and civil theft claims fail as a matter of law because she
cannot establish reasonable reliance due to the presence of the so-called “disclaimer” in
the policy; and (6) plaintiff fails to state a WOCCA claim for several reasons, most
notably because the defendant is the same entity as the alleged “enterprise.” The court
will review each in turn, starting, as it must, with jurisdiction, including defendant’s
challenge to this court’s subject matter jurisdiction.
I. Jurisdiction
As an preliminary matter, this court appears to have jurisdiction over the putative
class action pursuant to the Class Action Fairness Act of 2005 (“CAFA”) 28 U.S.C. §
1332(d).
First, the complaint and notice of removal contain allegations sufficient to
demonstrate that there is complete diversity, thus meeting the minimal diversity
requirement of CAFA. See 28 U.S.C. § 1332(d)(2)(A) (providing diversity under CAFA
is met if “any member of a class of plaintiffs is a citizen of a state different from any
6
defendant”). 3 Second, plaintiff alleges that the putative class “is estimated to contain
hundreds of individuals” (Compl. (dkt. #1-1) ¶ 13), and defendant represents that
plaintiffs’ estimate is conservative (Not. of Removal (dkt. #1) ¶ 16). See 28 U.S.C. §
1332(d)(5)(B) (requiring a putative class of at least 100 members). Third, Bankers has
credibly estimated that the amount in controversy exceeds $29.5 million (Not. of
Removal (dkt. #1) ¶¶ 19-21), easily satisfying the $5 million CAFA threshold. See 28
U.S.C. § 1332(d)(6) (“[T]he claims of the individual class members shall be aggregated
to determine whether the matter in controversy exceeds the sum or value of $5,000,000,
exclusive of interest and costs.”).
Fourth, the court finds that the discretionary and
mandatory exceptions to jurisdiction under CAFA do not apply because Bankers is not a
citizen of the State of Wisconsin. See 28 U.S.C. §§ 1332(d)(3), 1332(d)(4)(A) and (B).
This brings the court to Bankers’ motion to dismiss all claims because plaintiff
Heather Johnson was not a party to the contract between Bankers and her deceased
husband and, therefore, lacks standing to proceed, depriving this court of jurisdiction
over the dispute. (Def.’s Br. (dkt. #26) 18.) To establish standing, a plaintiff must have:
(1) an ‘injury in fact--an invasion of a legally protected
interest which is (a) concrete and particularized, and (b)
actual or imminent, not conjectural or hypothetical’; (2) a
causal connection between the injury and the conduct
complained of, that is, the injury is fairly traceable to the
challenged action of the defendant, not the result of the
‘independent action of some third party not before the court’;
and (3) a favorable decision likely will redress the injury.
Plaintiff Health Johnson is a citizen of Wisconsin. Defendant Bankers Life and
Casualty Company is incorporated in the State of Illinois, with its principal place of
business in Chicago.
3
7
O’Sullivan v. City of Chi., 396 F.3d 843, 854 (7th Cir. 2005) (quoting Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61 (1992)). Bankers’ challenge goes to the second prong -whether her injury is “fairly traceable to the challenged action of the defendant.”
Bankers argues that Johnson lacks standing as a third-party beneficiary to pursue
her fraud claims.
The cases cited by defendant in support, however, are easily
distinguishable because the plaintiffs in these cases were not privy to the alleged
misrepresentations and/or did not take part in the purchase decision.
See Prater v.
Wackenhut Corrections Corp., No. 01-50792, 44 Fed. App’x 654, 2002 WL 1397163, at *1
(5th Cir. June 14, 2002) (unpublished) (holding that third party beneficiary “has no
standing to assert a fraud claim when no misrepresentation was made to him or made
with intention of reaching him and when he did not act upon any misrepresentation”);
Solid Gold Casino Hotel & Resort of Tunica, Inc. v. Miles, No. 02-2863B, 2006 WL 721491,
at *2 (W.D. Tenn. Mar. 21, 2006) (finding separate entity not privy to alleged
misrepresentations concerning financing and construction of a casino lacked standing to
assert fraudulent misrepresentation claim); Erwin v. Texas Health Choice, L.C., 187 F.
Supp. 2d 661, 667 (N.D. Tex. 2002) (holding that third-party beneficiary to health care
contract between his employer and health care insurer lacked standing solely based on his
status to pursue fraudulent inducement and negligent misrepresentation claims); Maddux
v. Philadelphia Life Ins. Co., 77 F. Supp. 2d 1123, 1132 (S.D. Cal. 1999) (finding wife
lacked standing to pursue fraud claims where “[t]here is no evidence that Philadelphia
Life’s alleged assurances were ever communicated directly to [the wife] or that [she]
directly relied on the statements or terms contained in the life insurance policy”); In re
8
Van Quach, 187 B.R. 615, 619 n.5 (Bankr. N.D. Ill. 1995) (finding plaintiff lacked
standing to sue as for fraud because of his status as a third-party beneficiary, but finding
that his allegation that the “misrepresentation induced him to act” sufficient to satisfy
the standing requirement).
On the facts here, Bankers’ argument is nothing more than a red herring. Plaintiff
does not premise her standing on her status as a third-party beneficiary. Rather, the
complaint alleges (1) Heather Johnson was present for the agent’s sales pitch when the
alleged misrepresentation occurred (Am. Compl. (dkt. #22) ¶¶ 9-11); (2) she and her
husband jointly decided to cash out their old annuity despite penalties and to purchase
the Bankers annuity (id. at ¶ 12); and (3) the Johnsons used joint material assets to
purchase the annuity (id. at ¶ 13). These allegations are sufficient to establish Article III
standing, because, if true, the allegations demonstrate that Heather Johnson “personally
has suffered some actual or threatened injury as a result of the putatively illegal conduct
of the defendant, and that the injury fairly can be traced to the challenged action and is
likely to be redressed by a favorable decision.” Freedom From Religion Foundation, Inc. v.
Zielke, 845 F.2d 1463, 1467 (7th Cir. 1988) (internal citation and quotation marks
omitted). Accordingly, the court will deny defendant’s challenge to plaintiff’s standing to
pursue her claims.
II. Breach of Fiduciary Duty Claim
Next, Bankers argues that plaintiff’s breach of fiduciary duty claim should be
dismissed because Bankers owed no such duty to the Johnsons. The court agrees that
9
plaintiffs’ allegations fail as a matter of law to establish any fiduciary relationship existed
between the Johnsons and Bankers generally, or Chapp specifically. Accordingly, the
court will grant defendant’s motion to dismiss this claim.
Wisconsin recognizes two types of fiduciary relationships: “(1) those specifically
created by contract or a formal legal relationship such as principal and agent, attorney
and client, trust and trustee, guardian and ward, and (2) those implied in law due to the
factual situation surrounding the transactions and relationships of the parties to each
other and to the questioned transactions.” Prod. Credit Ass’n of Lancaster v. Croft, 143
Wis. 2d 746, 423 N.W.2d 544, (Ct. App. 1988); see also Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Boeck, 127 Wis. 2d 127, 136, 377 N.W.2d 605 (1985) (“A fiduciary
relationship arises from a formal commitment to act for the benefit of another (for
example, a trustee) or from special circumstances from which the law will assume an
obligation to act for another’s benefit.”).
As to the first kind of fiduciary relationship, Bankers argues that “[u]nder
Wisconsin law, insurers do not owe fiduciary duties to potential purchasers of their
policies.” (Def.’s Opening Br. (dkt. #26) 19 (citing Novotny v. Nat’l W. Life Ins. Co., 212
Wis. 2d 639, 1997 WL 358749, at *2 (Ct. App. July 1, 1997) (unpublished); Combined
Investigative Servs., Inc. v. Scottdale Ins. Co., 165 Wis. 2d 262, 271, 477 N.W.2d 82 (Ct.
App. 1991).) The cases cited by Bankers, however, concern an insurer’s duty to act in
good faith in providing coverage. Since that duty is limited to the terms of the contract,
10
the duty necessarily arises only after the purchase of the policy. 4 Here, plaintiff’s claim
for breach of fiduciary duty is not premised on a failure to provide coverage, but rather to
deal straightforwardly and fairly with a prospective purchaser of an annuity. Still, the
court agrees with defendants that a “formal commitment to act for the benefit of
another” does not exist in Wisconsin law prior to the purchase of the annuity.
Here, the alleged breach of fiduciary duty occurred during Chapp’s sales pitch to
the Johnsons, which occurred over two years before the Johnsons decided to purchase the
annuity. In Noonan -- a case relied on by plaintiffs -- the alleged breach occurred in the
payment of dividends under the annuities, in other words after a formal commitment to
act for the benefit of another had been made. Noonan v. Nw. Mut. Life Ins. Co., 2004 WI
App 154, ¶ 17, 276 Wis. 2d 33, 687 N.W.2d 254.
Plaintiff implicitly acknowledges that any fiduciary relationship must be premised
on the second category -- ones that arise because of “special circumstances.” The court
could not find -- nor did the parties direct the court to -- any cases recognizing “special
circumstances” that create a fiduciary relationship arising out of the purchase of an
annuity or an insurance policy generally (as opposed to the annuity contracts
themselves). This court, however, finds cases describing the fiduciary duties of financial
4
In Novotny, the Court of Appeals affirmed the dismissal of a breach of fiduciary duty
claim because plaintiffs simply alleged that the defendant insurer breached the insurance
contract. 212 Wis. 2d 639, 1997 WL 358749, at *2. Contrary to Bankers’
representation, there is no discussion in Novotny as to an insurer not owing a “fiduciary
duty to policy purchaser at point of sale” or that “insurer’s delivery of policy that did not
conform to purchaser’s specifications in application is deemed a counteroffer, as opposed
to a breach of fiduciary duty.” (Def.’s Opening Br. (dkt. #26) 19.)
11
investment brokers or banks analogous to the situation at issue here.
Indeed, the
Wisconsin Supreme Court has indicated that “persons offering financial investment
services have a fiduciary duty to disclose to their clients all material information
concerning the transaction involved.” Gries v. First Wis. Nat’l Bank of Milwaukee, 82 Wis.
2d 774, 778, 262 N.W.2d 254, 256 (1978) (discussing holding in Schweiger v. Lowei &
Co., Inc., 65 Wis. 2d 56, 221 N.W.2d 882 (1974)).5
In more recent cases, however, the court appears to have walked back any broad
application of a fiduciary relationship in the financial brokerage or banking arena. For
example, in Merrill Lynch, Perce, Fenner & Smith, Inc. v. Boeck, 127 Wis. 2d 127, 136, 377
N.W.2d 605, 609 (1985) -- a case cited by plaintiff -- the court held that “a broker does
not owe a fiduciary duty to an investor-customer who makes all of the investment
decisions” (i.e., where the relationship involves a “nondiscretionary account”). The court
explained,
[a] fiduciary relationship does not arise merely because a
broker offers advice and counsel upon which a customer has a
right to place trust and confidence. The right to place trust
and confidence in the reliability of representations involving
commercial transactions already is protected by the law of
misrepresentation.
Id. Similarly, in Croft, the Wisconsin Court of Appeals rejected the plaintiff’s argument
that a fiduciary relationship arose out of defendant bank’s “sophistication and superior
knowledge in the marketplace regarding business, money and finances or [plaintiff’s]
reliance on the trust, honesty, integrity and representations of” the bank. 143 Wis. 2d at
Plaintiff does not allege, and this court does not decide, whether the sale of the annuity
at issue could constitute a “security” under federal or state law.
5
12
755, 423 N.W.2d at 547. In so holding, the court specifically rejected the notion that
fiduciary relationship arises “merely because advice and counsel is offered upon which a
customer places trust and confidence.” Id. at 757, 423 N.W.2d at 548 (citing Boeck, 127
Wis. 2d at 136, 377 N.W.2d at 609); see also Jackson v. McKay-Davis Funeral Home, Inc.,
830 F. Supp. 2d 635, 648 (E.D. Wis. 2011) (“[T]rust and confidence alone do not give
rise to a fiduciary relationship.”).
While plaintiff nevertheless argues that such “special circumstances” are present
here because of “the inequality of the plaintiff’s position compared to the defendant’s
agent, who made representation of fact allegedly based upon his superior knowledge of
the annuity and its effect and purpose” (Pl.’s Opp’n (dkt. #29) 17), the case law
described above forecloses a fiduciary relationship solely based on an alleged inequality of
knowledge. Accordingly, the court will grant defendant’s motion to dismiss plaintiff’s
breach of fiduciary claim. 6
6
Given this holding, the court does not need to decide the merits of defendant’s position
that the language in the annuity policy itself suggesting that purchasers contact an
attorney to understand the impact the annuity may have on Medicaid eligibility, either
undermines the notion that the broker held a “position of trust” or discharges any
fiduciary duty arguably owed. The court also need not reach defendant’s argument that
such a claim is time barred, though it notes that plaintiff alleges that she only discovered
the misrepresentation in late 2010 or early 2011, within two years of filing of the present
action in November 2012. (Pl.’s Opp’n (dkt. #29) 19-20).) Whether Mrs. Johnson
should have discovered the misrepresentation earlier is a fact issue, which cannot be
resolved in a motion to dismiss.
13
III. Misrepresentation Claims
Bankers
also
moves
to
dismiss
plaintiff’s
negligent
and
intentional
misrepresentation claims, as well as her civil theft claim, which is premised on the same
alleged misrepresentation. First, defendant argues that the alleged misrepresentation at
issue -- that the annuity would protect the assets of the deferred annuities from affecting
Medicaid eligibility and spend down restrictions -- cannot form the basis of such a claim
because it is either a legal opinion or an opinion about a future event (or both). Second,
defendant argues that plaintiff’s misrepresentation claim fails as a matter of law because
the “disclaimer” in the policy undermines any claim of reasonable reliance. The court
rejects both arguments.
A. Future Promise or Legal Opinion
Under Wisconsin law, “[a]n unfulfilled promise or statement of future events
cannot provide the basis of a misrepresentation claim.” Badger Pharmacal, Inc. v. ColgatePalmolive Co., 1 F.3d 621, 627 (7th Cir. 1993); see also Friends of Kenwood v. Green, 2000
WI App 217, ¶ 17, 239 Wis. 2d 78, 619 N.W.2d 271 (finding statements reflecting
“hopes for future events” without any “absolute promises” insufficient to support a
misrepresentation claim). Rather, misrepresentation claims “must relate to present or
preexisting facts, not future ones.” Badger Pharmacal, 1 F.3d at 627. A “prediction may
constitute fraud where the predictor is aware of present facts incompatible with the
prediction or opinion.” Fed. Deposit Ins. Corp. v. Lauterbach, 626 F.2d 1327, 1334 (7th
Cir. 1980); see also Hartwig v. Bitter, 29 Wis. 2d 653, 139 N.W.2d 644, (1966) (a
14
misrepresentation claim may lie “when promises are made upon which the purchaser has
a right to rely, and at the time of making them the promiser has a present intent not to
perform them”).
Here, plaintiff alleges that Chapp misrepresented a key feature of the annuity
offered for sale to the Johnsons: that the annuity and income derived from it would be
excluded for purposes of determining Medicaid eligibility and spend down requirements.
This alleged misrepresentation is not a promise or hope about future actions on the part
of the promisor. E.g., Badger Pharmacal, 1 F.3d at 627 (finding Colgate’s representations
about future marketing plans were “promisory in nature, reflecting Colgate’s future
intent”); Friends of Kenwood, 2000 WI App 217, at ¶ 17 (concluding that “expressions of
hope that the Kenwood Temple would remain as a part of the Congregation” could not
form the basis of a misrepresentation claim). Rather, plaintiffs allege that Chapp knew at
the time of the sale that his representation was false or unsubstantiated. (Am. Compl. (dkt.
#22) ¶¶ 34, 37, 38, 43.) As such, this representation concerns a present fact or, at least,
is a prediction which is incompatible with present facts known to the speaker, either of
which can form the basis of plaintiff’s claims premised on a misrepresentation.
See
Hartwig, 29 Wis. 2d at 658, 139 N.W.2d at 648 (denying motion to dismiss
misrepresentation claim where defendant “knew that the ‘prospects’ in fact were not
interested in the purchase or sale of property”).
Bankers also argues that plaintiff’s misrepresentations claims fail because any
representation as to the annuity’s effect on Medicaid eligibility and spend down
requirements constitutes a legal opinion, which also cannot form the basis of a
15
misrepresentation claim. In Bentley v. Fayas, 260 Wis. 177, 183, 50 N.W.2d 404, 408
(1951), the Wisconsin Supreme Court held that statement that an insurance policy
carried by orchard operator would cover cherry picker employees could not form the basis
of a misrepresentation claim because it was “no more than an innocent misrepresentation
of law and not of fact.”
Here, plaintiff alleges that the alleged misrepresentation was a key selling point of
the annuity at issue and not an ancillary representation as part of a larger negotiation as
was true in Bentley. See also Radford Co. v. Ruan Transport Corp., No. 08-C-461, 2009 WL
5216985, at *3 (E.D. Wis. Dec. 30, 2009) (finding defendant did not “misrepresent any
fact about the agreement itself, it merely offered an opinion about a certain collateral
effect of the agreement”). Moreover, here, defendant is making a factual representation,
which might have legal consequences, about a product produced and sold by defendant,
not a document for which the defendant has no more particularized knowledge or
expertise than the plaintiff. See id. (noting plaintiff had the “same relevant information”
as defendant during the negotiation).
Still, whether the alleged misrepresentation constitutes a legal opinion is a closer
question, and one plaintiff wholly fails to address. Ultimately, it may be that statements
made here regarding tax implications of an annuity rider are not actionable under
Wisconsin law, but given the disparity in the parties’ relationship, the implicit allegation
that Bankers and Chapp knew or should have known that the tax consequences were
other than represented, and the allegation that these tax advantages were the key to
Bankers’ marketing this annuity, the court will allow these claims to go forward for now.
16
B. Reasonable Reliance
Next, defendant points to the language in the policy (1) advising that “[t]his rider
may have tax consequences or affect eligibility for Medicaid or other governmental
benefits” and (2) suggesting that the purchaser “[c]onsult a tax advisor or attorney.”
Accordingly to defendant, this language undermines as a matter of law any finding that
plaintiff’s reliance on Chapp’s alleged misrepresentation was reasonable or justified. In
support, defendant relies on the Seventh Circuit explanation in Lauterbach, 626 F.2d at
1334, that “[a] party presented with an opportunity to learn the truth may not ignore
that opportunity and blindly rely upon another’s representations where ordinary care
would have revealed the truth.” (citing Williams v. Rank & Son Buick, Inc., 44 Wis. 2d
239, 170 N.W.2d 807, 810-11 (1969)). “Whether the exercise of ordinary care would
have revealed the truth ‘is to be determined in light of the intelligence and experience of
the mislead individual.’” Lauterbach, 626 F.2d at 1334 (citing Williams, 170 N.W.2d at
810-11).
As an initial observation, the language in the policy is not a true “disclaimer.” The
language does not instruct the purchaser to disregard any other representations made
about the policy. E.g. Drilling Consultants, Inc. v. First Montauk Securities Corp., No. 8:10cv-2873, 2012 WL 3522607, at *6 (M.D. Fl. Aug. 14, 2012) (finding no reasonable
reliance as a matter of law at summary judgment in part because document stated that
defendant provides no tax advice); Zarrella v. Pac. Life Ins. Co., 755 F. Supp. 2d 1218,
1225 (S.D. Fla. 2010) (granting summary judgment for lack of reasonable reliance where
17
documents “plainly and expressly disclaim any promises or future tax benefits”); Omni
Home Financing, Inc. v. Hartford Life and Annuity Ins. Co., No. 06cv0921 IEG (JMA), 2008
WL 1925248, at *5 (S.D. Cal. Apr. 29, 2008) (granting summary judgment to defendant
on fraud claim where document “explained plaintiffs should not rely on defendants for
legal and tax advice”). Rather, it simply recommends that the purchaser contact a tax
advisor or attorney to understand the specific individual ramifications. Nothing about
this so-called disclaimer would alert a purchaser of the annuity that Chapp’s alleged
representations about the policy could not be trusted.
While the language may certainly be received by some as a warning, whether this
language undercuts a finding of reasonable reliance is ordinarily a question of fact. See
Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748, 767-68 (7th Cir. 2010) (discussing
Wisconsin law) (citing Sciano v. Hengle, 1 Wis. 2d 273, 83 N.W.2d 689, 692 (1957)).
This is no doubt why cases cited by defendant in support of a court finding that
plaintiff’s claim fails for lack of reasonable reliance, all involve motions for summary
judgment. See Lauterbach, 626 F.2d at 13367-37 (affirming grant of summary judgment
to defendants on fraud claim in part because plaintiffs were aware of enough facts to
require further investigation); Waukesha Cnty., Wis. v. Nationwide Life Ins. Co., No. 06-C0656-C, 2007 WL 5595893, at *11 (W.D. Wis. Oct. 12, 2007) (granting summary
judgment to defendant on misrepresentation claims because plaintiff’s reliance on fact
sheets on defendant’s website to assess its own risk was unreasonable); see also Drilling
Consultants, Inc., 2012 WL 3522607; Zarrella, 755 F. Supp. 2d 1218; Omni Home
Financing, Inc., 2008 WL 1925248.
18
IV. WOCCA Claim
Finally, while Bankers moves to dismiss plaintiff’s WOCCA claim on several
grounds, the court need only address one:
plaintiff’s failure to adequately allege an
enterprise separate and distinct from the defendant. WOCCA, Wis. Stat. § 946.83(3),
provides in pertinent part: “No person employed by, or associated with, any enterprise
may conduct or participate, directly or indirectly, in the enterprise through a pattern of
racketeering activity.” Putting aside the injury requirements, plaintiff acknowledges that
to state a WOCCA violation, she “must allege that defendant (1) conducted (2) an
enterprise (3) through a pattern (4) of racketeering activity.” (Pl.’s Opp’n (dkt. #24)
29.) See also Evers v. Calhoon, 185 Wis. 2d 710, 520 N.W.2d 111, 1994 WL 171973, at
*3 (Ct. App. May 3, 1994).
It is well established that the “person” or defendant must be separate from the
“enterprise.” See, e.g., State v. Judd, 147 Wis. 2d 398, 402, 433 N.W.2d 260, 262 (Ct.
App. 1988) (holding, consistent with RICO, that Wis. Stat. Ҥ 946.83(3) can only be
interpreted to require the person to be separate from the enterprise”); see also Cedric
Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001) (explaining that RICO
requires that a plaintiff must allege “the existence of two distinct entities: (1) a ‘person’;
and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different
name)”; see also Baker v. IBP, Inc., 357, F.3d 685, 691-92 (7th Cir. 2004) (“Without a
19
difference between the defendant and the ‘enterprise’ there can be no violation of
RICO.”). 7
The sole defendant in this action is Bankers, and therefore Bankers is necessarily
the “person” alleged to have violated WOCCA. Plaintiff also alleges in her amended
complaint that Bankers “is an ‘enterprise’ within the meaning of Wis. Stat. § 946.87(4).”
(Am. Compl. (dkt. #22) ¶ 49; see also Pl.’s Opp’n (dkt. #29) 24 (citing to allegation that
Bankers is the alleged “enterprise” under WOCCA).)
Because the pleadings in the
complaint as to this element of a WOCCA claim are not only insufficient, but
affirmatively allege facts demonstrating that plaintiff cannot prevail as a matter of law,
the court will grant defendant’s motion to dismiss this claim with prejudice. 8
ORDER
IT IS ORDERED that:
1) Defendant Bankers Life and Casualty Company’s motion to dismiss the
amended complaint (dkt. #25) is GRANTED as to plaintiff’s breach of
fiduciary duty claim (first cause of action) and WOCCA, Wis. Stat. §946.83,
claim (fifth cause of action) and DENIED in all other respects; and
2) Defendant’s motion for submission of material outside of pleadings (dkt. #27)
is GRANTED IN PART AND DENIED IN PART as provided in the above
opinion.
7
Wisconsin courts have instructed that “case law interpreting RICO is persuasive
authority when [] interpret[ing] WOCCA.” MBS-Certified Public Accountants, LLC v. Wis.
Bell Inc., 2013 WI App 14, ¶ 22, 346 Wis. 2d 173, 828 N.W.2d 575 (citing State v.
O’Connell, 179 Wis. 2d 598, 606, 508 N.W.2d 23 (Ct. App. 1993).
8
In light of this finding, the court need not address defendant’s argument that plaintiff
has failed to allege legally cognizable damages.
20
Entered this 20th day of September, 2013.
BY THE COURT:
/s/
________________________________________
WILLIAM M. CONLEY
District Judge
21
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