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Gallagher Corporation v. Russ

December 23, 1999


Appeal from the Circuit Court of Cook County. 95 L 16057 Honorable David Lichtenstein, Judge Presiding.

The opinion of the court was delivered by: Justice Zwick


This is an appeal from the circuit court's dismissal, pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1998)), of a Fifth Amended Complaint filed by plaintiffs Gallagher Corporation (Gallagher) and Gallagher Corporation Employee Defined Benefit Pension Plan (the plan). Defendant, Steven B. Russ, is a licensed actuary who furnished certificates between 1988 and 1993 to a retirement plan established by plaintiff Gallagher for the benefit of its employees. Gallagher hired Massachusetts Mutual Life Insurance Co. (Massachusetts Mutual) to administer the plan, and Massachusetts Mutual, in turn, employed defendant to certify the plan's financial health. Federal law requires that the plan be certified by an actuary each year. See Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C.A. §§ 1001 - 1461 (West 1995)).

Plaintiffs' complaint is in eight counts and alleges that the defendant caused it to incur damages in the amount of $800,000, plus unspecified attorney fees and additional actuarial costs. The first four counts were brought by the plan, an unincorporated entity. These counts are grounded on the following four theories of recovery:

(1) professional negligence, (2) breach of contract, including breach of a third-party-beneficiary contract, (3) negligent misrepresentation and (4) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (the Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1994)). The remaining counts, counts V through VIII, alleged the same theories of recovery, but were brought by Gallagher in its corporate capacity. *fn1

In dismissing the complaint, the circuit court issued an order which stated:

"Plaintiffs' claims, whether sounding in tort, contract or violation of statute, all fail because plaintiff[s] cannot and [have] not pled (save by conclusion) a duty between plaintiffs and defendant, Russ, sufficient to found any claim."

Initially, we observe that a section 2-615 motion to dismiss challenges only the legal sufficiency of a complaint and alleges only defects on the face of the complaint. Vernon v. Schuster, 179 Ill. 2d 338, 344, 688 N.E.2d 1172 (1997). The critical inquiry in deciding upon a section 2-615 motion to dismiss is whether the allegations of the complaint, when considered in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. Vernon, 179 Ill. 2d at 344, citing Bryson v. News America Publications, Inc., 174 Ill. 2d 77, 86-87, 672 N.E.2d 1207 (1996), and Urbaitis v. Commonwealth Edison, 143 Ill. 2d 458, 475, 575 N.E.2d 548 (1991). A cause of action will not be dismissed on the pleadings unless it clearly appears that the plaintiff cannot prove any set of facts that will entitle it to relief. Vernon, 179 Ill. 2d at 344, citing Gouge v. Central Illinois Public Service Co., 144 Ill. 2d 535, 542, 582 N.E.2d 108 (1991). In reviewing the circuit court's ruling on defendants' section 2-615 motion to dismiss, we apply a de novo standard of review. Doe v. McKay, 183 Ill. 2d 272, 274, 700 N.E.2d 1018 (1998). Finally, because we may affirm the circuit court on any ground appearing in the record (Estate of Strocchia v. City of Chicago, 284 Ill. App. 3d 891, 677 N.E.2d 964 (1996)), we address all arguments made by defendant's motion now urged to be sufficient to affirm the circuit court's dismissal, even arguments not addressed by the circuit court in issuing its ruling.

Defendant first argues that dismissal of plaintiffs' complaint was proper with regard to counts I, II, III and IV because the plan has no standing to sue. Defendant's argument is essentially that the plan is unincorporated and, as such, is not a "person" or "party" with sufficient legal interests to bring a law suit. See Bridgestone/Firestone, Inc. v. Aldridge, 179 Ill. 2d 141, 146, 688 N.E.2d 90 (1997) ("the doctrine of standing requires that a party have a real interest in the action brought and its outcome"); In Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 492, 524 N.E.2d 561 (1988), however, our supreme court rejected a formulaic approach to determining who has standing to sue, stating simply that "standing in Illinois requires only some injury in fact to a legally cognizable interest." The claimed injury need only be (1) "distinct and palpable"; (2) "fairly traceable" to the defendant's actions; and (3) substantially likely to be prevented or redressed by the grant of the requested relief." Greer, 122 Ill. 2d at 492-93. Section 1132(d)(1) of ERISA provides that an employee benefit fund such as the plan "may sue or be sued under this subchapter as an entity." Defendant argues that the language "under this subchapter" indicates that a benefit plan created by ERISA may only sue under those provisions set out in the ERISA statute itself, and may not bring State claims. However, this argument was specifically rejected in Pressroom Unions-Printers League Income Security Fund v. Continental Assurance Co., 700 F. 2d 889 (2d Cir. 1983). There, the court determined that it was Congress's intent, in passing section 1132(d)(1) of the statute, that employee benefit plans be able to sue and be sued "like corporations and other legal entities." Pressroom, 700 F.2d at 893. In that allowing the plan to sue as a plaintiff in this case is consistent both with Greer and with the federal court's decision in Pressroom, we reject defendant's argument.

Defendant also claims that Gallagher has no standing to bring counts I-IV on behalf of the plan because ERISA requires those who sue on behalf of a regulated employee benefit plan to be a fiduciary (29 USCA 1002(16)(B)), and defendant asserts that Gallagher has failed to allege sufficient facts which establish a fiduciary status between Gallagher and the plan. Gallagher responds principally by noting that defendant failed to make this argument in the circuit court, and that the pleading does allege that Gallagher is a fiduciary of the plan, albeit by way of conclusion.

As Gallagher asserts, it is generally improper for this court to affirm a section 2-615 dismissal on the pleadings if doing so would deny the plaintiff the opportunity to cure the alleged defect by amendment. O.K. Electric Co. v. Fernandes, 111 Ill. App. 3d 466, 470, 444 N.E.2d 264 (1982). The failure to allege sufficient facts to support a conclusionary pleading is precisely the type of argument which must be considered waived once the case proceeds to an appeal. Cf. Ray v. City of Chicago, 19 Ill. 2d 593, 169 N.E.2d 73 (1960)(summary judgment). Accordingly, we reject defendant's claim.

We turn to the defendant's assertion that plaintiffs have failed to properly allege a cause of action sounding in professional negligence (Counts I and V). A complaint for a negligent tort must allege facts from which the law will raise a duty, and specific facts showing an omission of that duty and resulting injury; otherwise, the complaint is properly dismissed. Schaffrath v. Village of Buffalo Grove, 160 Ill. App. 3d 999, 513 N.E.2d 1026 (1987). The existence of a duty depends upon whether defendant and plaintiff stand in such a relationship to one another that the law imposes upon defendant an obligation of reasonable conduct for the benefit of plaintiffs. The question is one of law for the court to decide (Pelham v. Griesheimer, 92 Ill. 2d 13, 440 N.E.2d 96 (1982)) and is contingent upon a variety of factors with the weight accorded each factor depending upon the circumstances of each case. (O'Hara v. Holy Cross Hospital, 137 Ill. 2d 332, 339, 561 N.E.2d 18 (1990)). Thus, as a threshold matter, plaintiffs are required to allege the existence of a relationship between themselves and the defendant that would give rise to a duty. In deciding the issue, we consider the foreseeability of the plaintiffs' alleged injuries, the likelihood of the occurrence, the magnitude of the burden of guarding against it, and the consequences of placing that burden upon the defendant. Doe v. McKay, 183 Ill. 2d 272, 278, 700 N.E.2d 1018 (1998).

Defendant concedes that liability for negligent preparation of an actuary's certification may be imposed under common law tort principles (See generally, Hager, The Emerging Law of Actuarial Malpractice, 31 Drake L. Rev. (1982)), even against a party not in contractual privity with the actuary like Gallagher and the plan, but argues the plaintiffs' complaint is defective because it fails to allege sufficient facts tending to show that protecting the plaintiffs from injury was "the primary or direct purpose" of the employment agreement between defendant and Massachusetts Mutual. Defendant argues that this is a prerequisite to plaintiffs' suit under the doctrine announced in Pelham v. Griesheimer, 92 Ill. 2d 13, 440 N.E.2d 96 (1982)(professional negligence allegations based upon another's relationship with his attorney) and Brumley v. Touche Ross & Co., 123 Ill. App. 3d 636, 642, 463 N.E.2d 195 (1984)(accountants' liability to third parties). This requirement has been referred to as the "primary intent" rule. See Brumley v. Touche Ross & Co., 139 Ill. App. 3d 831, 835, 487 N.E.2d 641 (1985).

The terms of plaintiffs' Fifth Amended Complaint appear to meet the primary intent rule because the complaint explicitly states that defendant prepared the actuarial valuations for the plaintiffs' use in determining the amounts necessary to meet the plan's funding obligations. The complaint also states that the defendant's recommendations were made not to Massachusetts Mutual, but rather, directly to the plaintiffs. Such allegations would normally be sufficient to meet the primary intent rule, particularly in light of the fact that all factual inferences must be taken in the light most favorable to the plaintiff. People ex rel. Sklodowski v. State of Illinois, 182 Ill. 2d 220, 227-28, 695 N.E.2d 374 (1998). In this case, however, other allegations in the complaint contradict the notion that Russ was engaged by Massachusetts Mutual with the primary intent or purpose of benefitting Gallagher. As we discuss more fully in our analysis which follows regarding the plaintiffs' third-party beneficiary contract claims, the statutory provisions of ERISA cited in the complaint make clear that Russ's engagement by Massachusetts Mutual was only for the benefit of the plan, and not to protect Gallagher's ...

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