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FEDERAL INS. CO. v. PARELLO

May 31, 1991

FEDERAL INSURANCE COMPANY, A Corporation, Plaintiff,
v.
FRANK J. PARELLO, VIRGIL B. ONATE, GEORGE LAIVINIEKS, JOHN P. CURTIN, DR. MARTIN BRUCE FARKAS, DR. ARNOLD KALLEN, LESTER BARNES AND ARNOLD HARRIS, Defendants


Brian Barnett Duff, United States District Judge.


The opinion of the court was delivered by: DUFF

BRIAN BARNETT DUFF, UNITED STATES DISTRICT JUDGE

 The defendant, Frank J. Parello, moves to dismiss all 4 counts of the plaintiff's, Federal Insurance Company, ("Federal"), complaint. Count I of the complaint alleges a breach of fiduciary duty, count II alleges fraud, and counts III and IV allege violations of the Racketeer Influence and Corrupt Organizations Act ("RICO"). See 18 U.S.C §§ 1961 et seq., 1962(c) and (d).

 Instead of a well thought out surgical strike, the defendant has launched a blitzkrieg attack arguing that the complaint should be dismissed for a variety of reasons. According to the defendant, the complaint suffers from the following deficiencies. Count I fails to state a cause of action, is not pled with particularity under federal rule 9(b), and is not justiciable because the plaintiff lacks standing and this court lacks subject matter jurisdiction. Count II suffers from the same defects as count I except that it apparently does state a cause of action. Count III is in even worse shape. Like count I, it is not pled with particularity and the plaintiff lacks standing to pursue the action. In addition, count III is barred by the statute of limitations, fails to allege a pattern of racketeering, and fails to adequately allege an enterprise. Count IV, which relatively speaking is a model of health, is barred by the statute of limitations, is not pled with particularity under federal rule 9(b), and the plaintiff lacks standing to bring the action. Before addressing the merits of the defendant's motion, which if accurate would make this complaint pound for pound the most defective one filed in this court in years, the court will review the salient facts of this dispute.

 Facts

 Around January of 1983, Federal issued a fidelity bond to Lincoln National Corporation ("Lincoln") and American States Insurance ("American") to cover them from losses sustained due to fraudulent or dishonest acts of their employees. According to the complaint, the defendants perpetrated a scheme whereby fraudulent claims were submitted to either Lincoln or American. These claims, which ran in the millions of dollars, were ultimately paid by the insurance companies. Under the terms of the fidelity bond, Federal was required to reimburse those companies for their losses. Federal as assignee and subrogee of Lincoln and American brings this action against the defendants.

 The key figures in this scheme were defendants Parello and Onate who worked as claim adjustors for American. With the aid of defendants Laivinieks, Curtin, Farkas, Kallen, Barnes, and Harris they orchestrated a scheme to collect on fraudulent insurance claims. Their usual tactics were either to stage a fictitious automobile accident or cause one. In staged accidents, the defendants would recruit "accident victims" who would claim they were struck by a hit and run driver. To inflate the claims, the recruits would receive unnecessary medical treatment from crooked doctors involved in the fraud. In addition to staging accidents, the defendants would intentionally cause them. In a typical case, the perpetrator would maneuver his car a short distance ahead of another vehicle. The perpetrator would then slam on his brakes causing an innocent driver to collide with the rear portion of his vehicle. Oftentimes, the perpetrator would disconnect his brake lights making it impossible for the innocent driver to stop in time.

 To collect on these claims, wrongfully issued claim checks as well as fraudulent claim forms were sent through the mails. These allegations add up to the following causes of action: breach of fiduciary duty, fraud, and violations of 18 U.S.C §§ 1961 et seq., 1962(c) and (d).

 Failure To State A Cause Of Action: Count I

 The defendant's first attack on Federal's complaint is that count I does not state a cause of action for breach of fiduciary duty. In Illinois, a fiduciary relationship exists "where there is a special confidence reposed on one side and a resulting superior knowledge or influence on the other." A. T. Kearney Inc. v. INCA International Inc., 132 Ill. App. 3d 655, 661, 477 N.E.2d 1326, 87 Ill. Dec. 798 (1st Dist. 1985). As a matter of law, a fiduciary relationship exists between a principal and an agent. Id. Defendant claims that the plaintiff does not allege any connection between himself and Lincoln. In addition, the defendant contends that the complaint fails to allege that Lincoln or American reposed trust in the defendant, that the defendant accepted the trust thereby putting him in a superior position, and that he took advantage of that superior position.

 The complaint establishes that Parello was employed by American. Therefore, as a matter of law, a fiduciary relationship exists. Id. In addition, there is no question that the complaint alleges that American reposed trust in the defendant and that he took advantage of that trust. The defendant had authority to cause American to make payments on its outstanding claims. He used his position to authorize payments that he knew were fraudulent in order to illegally profit. It is hard to imagine a better example of a fiduciary relationship than the one here.

 The next question before the court is whether a fiduciary relationship existed between the defendant and Lincoln. The complaint avers that American is the wholly owned subsidiary of Lincoln, and that the defendant was employed by American. Although the defendant claims that a fiduciary duty does not exist between an agent of a wholly owned subsidiary and that subsidiary's parent, he has neither cited any case law nor made any argument supporting his position.

 It is manifest that a subsidiary and its parent are separate and distinct entities. The law is replete with cases holding that absent improper conduct, a parent cannot be held liable for the actions of its subsidiary. See e.g. Brown v. Syntex Laboratories 755 F.2d 668 (8th Cir. 1985). In addition, it is well settled that an owner of a corporation has no standing to sue in his own right for an injury to the corporation on the ground that the injury has diminished the value of his stock. 13 W. Fletcher, Cyclopedia of Corporations §§ 5911-13 (1990). A far less discussed issue, yet nonetheless analogous, is whether a parent has standing to sue a tort-feasor for injuries sustained by its subsidiary. The courts and commentators found to have addressed this issue have uniformly held the parent does not have standing to pursue such a suit.

 In Picture Lake Campground v. Holiday Inns, Inc., 497 F. Supp. 858 (E.D. Va 1980) the defendant, Holiday Inns, executed a written license agreement with Picture Lake. When the defendant breached the license agreement with Picture Lake, its parent sued the defendant for tortious conduct committed against its subsidiary. Relying on the fact that a parent and a subsidiary are separate entities, the court held that Picture Lake's parent had no standing to sue the defendant. Id. at 863. See also 1 Fletcher Cyclopedia Corporations § 36 (1990) ("Nor does a corporation have standing to sue for ...


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