United States District Court, N.D. Illinois
January 20, 2004.
TRUSTMARK INSURANCE COMPANY, Plaintiff,
GENERAL COLOGNE LIFE RE OF AMERICA, Defendant
The opinion of the court was delivered by: BLANCHE MANNING, District Judge
MEMORANDUM AND ORDER
Plaintiff Trustmark Insurance Company ("Trustmark") brought the
instant action seeking: (1) a declaratory judgment that Defendant General
Cologne Life Reinsurance of America ("Cologne") is obligated under an
alleged joint venture agreement that it made with Trustmark to reinsure a
block of individual disability insurance ("IDI Policies")*fn1 (Count I);
(2) specific performance under the alleged agreement (Count II); (3)
damages for breach of contract (Count III); (4) damages for breach of
fiduciary duty (Count IV); and (5) damages for promissory estoppel (Count
V). After extensive discovery and briefing, this Court GRANTED Cologne's
Motion for Summary Judgment as to Counts I-IV but DENIED the motion as to
Count V (promissory estoppel).
After a bench trial on the promissory estoppel claim, Cologne brought
the present Amended and Restated Motion for Judgment as a Matter of Law,
pursuant to Federal Rule of Civil Procedure 52. For the reasons set forth
herein, the Court DENIES this motion.
From 1998 to 1999, Trustmark and Cologne investigated the possibility
of reinsuring various blocks of IDI policies.*fn3 In researching the
potential purchase of IDI blocks, Cologne and Trustmark did not codify
their intentions in a single document. During the course of investigating
various IDI blocks, Trustmark, Cologne, and John Hewitt & Associates
("JHA"), a subsidiary of Cologne, performed due diligence on a block of
7,000 IDI policies underwritten by Hartford Life Insurance Company
("Hartford") ("the Hartford Block"). On October 28, 1998, after
conducting due diligence on the Hartford Block, Trustmark signed a Letter
of Intent with Hartford to acquire the IDI block ("the Letter of Intent"
or "Letter"). Cologne, however, did not sign, nor was mentioned, in the
Letter of Intent.
Trustmark contends that it only executed the Letter of Intent after
Cologne reviewed the Letter and agreed to share in the risk of reinsuring
the Hartford Block. Without Cologne's approval, Trustmark alleges that it
would never have entered into the Letter of Intent. Cologne, on the other
hand, denies that it agreed to participate in reinsuring the Hartford
The Letter of Intent stated that "time is of the. essence" and that the
Final Purchase Agreement for the Hartford Block ("the Final Purchase
Agreement") would be executed no later than December 1, 1998, "unless a
later date is mutually agreed upon." The Final Purchase
Agreement, however, was not signed until December 28, 1999. Like the
Letter of Intent, Cologne did not sign, nor was it mentioned, in the
Final Purchase Agreement.
Prior to the execution of the Final Purchase Agreement, on September 3,
1999, however, Cologne informed Trustmark that it was no longer
interested in sharing in the risk on the Hartford Block.
Although Cologne had disavowed any interest in reinsuring the Hartford
Block and Trustmark was facing significant losses, Trustmark contends
that it was bound to enter into the Final Purchase Agreement by the
Letter of Intent. Cologne, on the other hand, contends that by December
1999, Trustmark was no longer bound by the Letter of Intent. Cologne
asserts that the Final Purchase Agreement contained materially different
terms from the Letter of Intent. Trustmark contests this assertion, and
contends that any differences in the terms were slight and at most
constitute a minor variance from the terms in the Letter of Intent.
After Cologne refused to accept any liability on the Hartford Block,
Trustmark brought the instant action. After extensive discovery and
briefing, this Court GRANTED Cologne's Motion for Summary Judgment as to
Counts I-IV but DENIED the motion as to the promissory estoppel claim
(Count V). In ruling on this motion, this Court found that because
Trustmark failed to present sufficient evidence that Trustmark and
Cologne shared the requisite joint control, no joint venture exists as a
matter of law, and therefore, summary judgment was appropriate as to
Counts I-IV of Trustmark's Complaint because these counts were based on
the existence of an alleged joint venture. In denying the motion as to
the promissory estoppel claim, this Court found that there was a genuine
material question of fact as to whether Trustmark
reasonably relied on an unambiguous promise to its detriment.*fn4
After a bench trial on the promissory estoppel claim, Cologne brought
the instant motion seeking a judgment as a matter of law, pursuant to
Cologne contends that it is entitled to a judgment as a matter of law
because Trustmark has failed to establish: (1) the elements of its
promissory estoppel claim; and (2) that it is entitled to invoke the
partial performance exception to the statute of frauds. The Court will
address each of these contentions in turn.
I. Promissory Estoppel
To prevail on its promissory estoppel claim, Trustmark must show: (A)
an "unambiguous promise" by Cologne to Trustmark to reinsure the Hartford
Block; (B) Trustmark relied on the promise in entering into the Letter of
Intent with Hartford; (C) Trustmark's reliance was "expected and
foreseeable" by Cologne; and (D) Trustmark actually relied on the promise
to their detriment. Cohabaco Cigar Co v. United States Tobacco
Co., 1999 WL 988805, at *10 (RD. Ill. Oct. 22, 1999); Hall v.
Nat'l Collegiate Athletic Assoc., 985 F. Supp. 782, 796 (N.D. Ill.
Cologne contends that Trustmark has failed to establish that: (A)
Cologne made an "unambiguous promise" to reinsure 50% of the Hartford
Block; and (B) even if such a promise was made, Trustmark relied on it to
its detriment The Court will address each of these contentions in turn.
A. Unambiguous Promise
Although an "unambiguous promise" is required to prevail on a claim for
promissory estoppel, "an express promise is not required." Falk v.
U.H.H. Home Servs. Corp., 835 F. Supp. 1078, 1080 (N.D. Ill. 1993)
(citing First Nat'l Bank v. Sylvester, 554 N.E.2d 1063, 1070
(Ill.App. Ct. 1990). Rather, the unambiguous promise may be "inferred
from conduct and words" and the defendant's "past practice[s]."
Id. In determining whether the promise was unambiguous, the
court should examine the "intent of the promisor" to determine whether a
reasonable person would have concluded that the defendant's actions
constituted "a commitment" to "be bound." See Major Mat.
Co. y. Monsanto Co., 969 F.2d 579, 583 (7th Cir. 1992).
See also 31 C.J.S. Estoppel and Waiver
§ 93 (2003) ("a promise is a manifestation of intent by the promisor
to be bound and is to be judged by an objective standard").
Furthermore, in determining whether a promise is "unambiguous," the
party seeking to enforce the promise must specifically identify the
"source of [the] promise." Hall, 985 F. Supp. at 796. The
failure to point to the source of the alleged promise results in a
finding that the promise is ambiguous. Id. Moreover, a promise
by a party "simply to invest is ambiguous and cannot be reasonably relied
upon if the promisee is unaware of the terms of the investment."
Stuart Park Assoc. Ltd. Partnership v. Ameritech Pension Trust,
846 F. Supp. 701, 712 (N.D. Ill. 1994).
Although neither party here has cited, and this Court has not found,
any decisions regarding promises with respect to sharing the risk in
reinsurance, a number of courts have examined what constitutes an
unambiguous promise in cases involving a lender and a borrower. For
example, in Sylvester, 554 N.E.2d at 1070, in reversing the
trial court's grant of summary judgment, the Illinois Appellate Court
held that the plaintiff put forth sufficient facts to support a claim for
promissory estoppel against a bank, which withdrew the plaintiff's line
of credit. The plaintiff agreed to move its accounts to the bank after
the bank stated that it "would be no problem" for the plaintiff to open a
$600,000 line of credit. Id. at 1066. Although "[t]here was no
agreement as to the length of time the line of credit would be extended,"
for the next six years, the plaintiff borrowed over $1,000,000 on a
revolving basis and was told that it was a valued customer. Id.
at 1067. Based on its long-standing line of credit with the bank, the
plaintiff entered into a contract with a third-party intending to use the
line of credit for payment. Id., After the bank unexpectedly
cancelled the line of Credit, the plaintiff was forced to default on the
contract with the third party. Id. at 1067-68. In reversing the
trial court, the Illinois Appellate Court held that based on the bank's
past actions and assurances, a trier of fact could find that a reasonable
person would have believed that the bank intended to be bound and thus
had made an unambiguous promise.*fn6 Id. at 1070.
Here, Trustmark presented several witnesses who worked on the Hartford
transaction and testified that, although they could not recall the
specific details from any conversations, they
believed that Cologne intended to insure 50% of the risk on the
Hartford Block. Therefore, the question is whether a reasonable person
would have believed this to be true based on Cologne's words and actions.
After carefully reviewing the trial transcript and exhibits, this Court
finds that, based on Cologne's words and conduct, it communicated to
Trustmark an intent to share in 50% of the risk on the Hartford Block and
that it was reasonable for Trustmark to believe this to be accurate. This
decision is based in large part on the testimony of Andrew Perkins, a
senior vice-president at Cologne, who worked closely with Trustmark in
evaluating the Hartford Block and had the authority to bind Cologne in
such a deal. Although Perkins testified that he never explicitly promised
that Cologne would reinsure half of the Hartford Block, his words and
actions could have led a reasonable person to conclude otherwise. For
example, Perkins testified that Cologne: (1) was "interested in" and
"agreed to jointly pursue the [Hartford Block] with Trustmark"; (2)
established a S2 million reserve for the purpose of paying claims from
the Hartford Block; (3) reviewed drafts of the Letter of Intent and
opined that they were "acceptable"; (4) at the time the Letter of Intent
was executed, "expected that Trustmark would cede 50% of the business" to
Cologne; and (5) did not sign a reinsurance agreement with Trustmark at
the time of the Letter of Intent because both parties thought that "it
was best to wait until the documents were signed with Hartford." With
regard to the establishment of the $2 million reserve, at least one
witness testified that based on the law and industry custom and practice,
there would have been no reason to establish the reserve unless Cologne
had intended to reinsure the Hartford Block.
Additionally, Perkins testified about a meeting between Mr. Magsig,
Perkins's boss and president of Cologne, and the CEO and president of
Trustmark, around the time the Letter of
Intent "was being finalized." In connection with this meeting,
Magsig prepared a "visit report" (Pl's Ex. 17), summarizing this meeting
and stating that Cologne "was very pleased that the Hartford disability
transaction in which we are jointly purchasing Hartford's closed block of
individual DI business is nearly closed." Perkins testified that he read
this report but never told Magsig that anything in the report was
incorrect. The fact Perkins never told his boss and the CEO of Cologne
that there was not a deal to take 50% of the risk of the Hartford Block,
is strong evidence that Cologne did indeed intend to take such a risk.
Similarly, after the execution of the Letter of intent, Perkins
received a letter from Koloms of Trustmark stating that "since 1997,
Trustmark has had an agreement with Cologne that the two companies would
join forces with regard to any individual disability assumption
reinsurance opportunity reaching the attention of either party" and
"would evenly split the insurance risk on any such block with Trustmark
providing the administrative capabilities." Despite the fact that he now
states that there was never any promise by Cologne to split the
reinsurance risk with Trustmark, Perkins never told Trustmark otherwise.
Moreover, on December 30, 1998, after the Letter of Intent was
completed, Perkins wrote a letter to Lincoln National, seeking to
purchase a block of policies. (Pl's Ex. 24.) In this letter, Perkins
stated that "[s]ince 1997, Cologne and Trustmark have been working
jointly in pursuit of non-cancellable disability opportunities and were
successful partners in the aforementioned Hartford acquisition." Although
Perkins testified that he did not mean to imply that Cologne and
Trustmark had a legally binding partnership, this letter certainly
demonstrates that even after the Letter of Intent was executed, Cologne
still intended to share in 50% of the risk in the Hartford Block.
Additionally, the testimony and exhibits show that Perkins reviewed
multiple drafts of the Letter of Intent and told Trustmark that the final
Letter of Intent was acceptable. Moreover, on February 23, 1999, after
verbally signing off on the Letter of Intent and reviewing a draft of the
Final Purchase Agreement, Perkins wrote on the draft that "[w]e'll end up
with a retro from Trustmark following this agreement." (Pl's Ex. 32.)
Obviously, if Cologne had not intended to reinsure 50% of the Hartford
Block, Perkins would not have believed that Cologne would receive a
retroactive payment from Trustmark after it executed the Final Purchase
Additionally, JHA, which is affiliated with. Cologne, performed the due
diligence on the Hartford Block. Mr. Demarco, who was in charge of due
diligence on the Hartford Block for JHA, testified that he believed that
in February of 1999, "Cologne and Trustmark had been successful partners
in the acquisition of the Hartford Block."
Accordingly, this Court finds that Trustmark has established that
Cologne intended to share in a specific percentage of the risk on the
Hartford Block, and thus made an unambiguous promise to be bound.
B. Detrimental Reliance
Detrimental reliance can consist of "any act which occasioned [the
promisee] the slightest trouble or inconvenience." See, e.g.,
FH Prince & Co., Inc. v. Towers Fin. Corp., 656 N.E.2d 142,
147 (Ill. 1995). In determining detrimental reliance, the court must look
at the individual facts of each case, Chicago Limousine Service,
Inc. v. City of Chicago, 781 N.E.2d 421, 422 (Ill.App. Ct. 2002),
to determine if enforcing the promise is the only way that the detriment
can be avoided. See People v. Fako, 726 N.E.2d 734,
735-36 (Ill.App. Ct. 2000).
Whether Trustmark detrimentally relied on Cologne's promise hinges upon
Letter of Intent bound Trustmark to enter into the Final Purchase
Agreement. If Trustmark was required to enter the Final Purchase
Agreement, then it can be concluded that Trustmark relied on Cologne's
promise to its detriment. If, however, Trustmark executed the Final
Purchase Agreement, on its own accord, without being required to do so by
the Letter of Intent, then Trustmark cannot prove that it detrimentally
relied on Cologne's promise.
Cologne contends that Trustmark was not required to enter into the
Final Purchase Agreement because: (1) the Letter of Intent was contingent
upon the Final Purchase Agreement; (2) even if the Letter of Intent was
binding, the Final Purchase Agreement materially varied from the Letter
of Intent. The Court will examine each of these contentions to determine
whether the Letter of Intent legally bound Trustmark to enter into the
Final Purchase Agreement.
Letters of intent are often used in sophisticated business transactions
to memorialize a basic agreement and to efficiently "flush out any
potential deal-breaking issues early in the negotiating process." SHOO8
ALI-ABA 387, Letters of Intent (2003). To determine if a letter
of intent is a legally enforceable agreement, courts examine whether the
parties intended to be bound by the letter of intent. Quake Constr.,
Inc. v. American Airlines, Inc., 565 N.E.2d 990, 994, 996-97 (Ill.
1990), In analyzing the parties' intent, the court must first examine the
contract as a whole, and may only examine parole evidence if the language
in the letter of intent is ambiguous or open to more than one
interpretation with respect to the parties' intent to be bound.
Id. at 994.
In examining the language, if the letter of intent contains a
"condition precedent" requiring a formal agreement to be signed before
the parties are obligated to perform, then even if all the terms of the
contract are set forth in the letter of intent, it does not constitute a
legal agreement. Id. at 993-94. See also Magnus v.
Lutheran Gen. Health Care Sys. v. Parkside Dev. Corp.,
601 N.E.2d 907, 913 (Ill.App. Ct. 1992). If, however, there is only a "mere
reference to a future contract," the letter of intent may still be
binding, particularly if the future contract "is to be substantially
based on the  terms" of the letter of intent. Magnus, 601
N.E.2d at 913.
In cases where courts have found that the letter of intent was not
binding, the letters of intent contained specific language conditioning
any agreement upon a future execution of a formal agreement. For example,
in Magnus, 601 N.E.2d at 912, the letter of intent stated that
"[e]ach party's obligations hereunder are subject to and contingent upon
the execution of the Purchase Agreement." The court held that this
language "was unambiguous, indicating as a matter of law that no contract
came into existence until the subsequent document was executed."
Id. at 913. Likewise, in Interway, Inc. v. Alagna,
407 N.E.2d 615, 616 (Ill.App. Ct. 1980), the court found that a letter of
intent was not a binding agreement because it contained the following
wording: "[o]ur purchase is subject to a definitive Purchase and Sale
contract to be executed." The court found that the term "subject to"
showed as a matter of law that the parties did not intend for the letter
of intent to be binding. Id.
Here, while the Letter of Intent does mention the subsequent drafting
of the Final Purchase Agreement, it does not contain any explicit
language stating that the parties' obligations are "subject to" or
"contingent upon" the execution any subsequent agreement.*fn7 In fact,
Letter of Intent states that "[o]nce accepted, this letter shall be
binding, in accordance with its terms, upon the parties hereto." (Pl's
Ex. 77.) Accordingly, this Court will look outside the four comers of the
Letter of Intent to determine whether the parties intended to be bound by
the letter of intent.
Looking outside the letter of intent to determine if the parties
intended it to be binding, courts examine whether the agreement: (1) is
of the type [that] is usually put into writing"; (2) "contains many or
few details"; (3) "involves a large or small amount of money"; and (4)
"requires a formal writing for the full expression of the covenants."
Quake Constr., Inc., 565 N.E.2d at 994. Courts also examine
"whether the negotiations indicated that a formal written document was
contemplated at the completion of the negotiations." Id. Also
of importance is whether a party undertakes an obligation prior to the
execution of a formal contract which is governed by the terms of the
letter of intent. Id. at 995.
Here, after carefully examining the trial testimony and exhibits, this
Court finds that the Letter of Intent was binding. The testimony at trial
revealed that letters of intent are generally entered into in reinsurance
agreements before the parties enter into a final purchase agreement. The
Letter of Intent itself contained the essential provisions which were
included in the Final Purchase Agreement. The transaction involved a
large amount of money $20 million. Additionally, in anticipation
of entering into the Final Purchase Agreement, Trustmark incurred
substantial costs in having the Hartford Block evaluated and undertook
extensive preparations in anticipation of handling the claims
administration for, the Hartford Block. Accordingly, this
Court finds that the fact that Hartford and Trustmark intended to
enter into the Final Purchase Agreement after executing the Letter of
Intent does not negate the parties' obligations in the Letter of Intent.
Additionally, Cologne contends that Trustmark was not required to enter
into the Final Purchase Agreement because: (1) the Final Purchase
Agreement was not executed until over one year from the date set forth in
the Letter of Intent; (2) Trustmark did not timely receive consent from
the former reinsurers Lincoln National or Swiss Re for
the assignment of existing reinsurance; and (3) the purchase price was
Before discussing these specific contentions, the Court will address
the law regarding the parties' obligations and rights when finalizing an
agreement based on a letter of intent. Contrary to Cologne's contention,
parties to a letter of intent may leave "some matters" open "for future
agreement." See A/S Apothekeres Laboratorium for
Specialpraeparater v. I.M.C. Chem. Group. Inc., 873 F.2d 155, 157
(7th Cir. 1989) (applying Illinois law). Accord Liu v. Price
Waterhouse LLP, 1999 WL 1012456, at *4 (N.D. Ill. Oct. 19, 1999) ("A
contract may be enforced even though some of the contract terms may be
missing or left open"). Moreover, in negotiating open terms or changes in
conditions set out in the letter of intent, courts may impose "a duty to
negotiate in good faith." See A/S Apothekeres,
873.F.2d at 158. To determine if the parties have a duty to negotiate in
good faith and the scope of such duty, the court must examine "the terms
of the letter of intent itself." Id."The obligation to
negotiate in good faith has been generally described as preventing one
party from, renouncing the deal, abandoning the negotiations, or
insisting on conditions that do not conform to the preliminary
Here, although the parties have not specifically discussed whether
Trustmark had a duty
to negotiate in good faith, it appears to this Court that such a
duty existed. The Letter of Intent specifically states that "the [b]uyer
shall use its best efforts to assume the Policies as soon as possible,"
(Def.'s Ex. 2, at ¶ 1.) In assuming the "Policies," Trustmark was
required to have the then current reinsurers Lincoln National
or Swiss Re transfer all current reinsurance policies.
(Id. at ¶ 14.) Accordingly, this Court finds that the
Letter of Intent imposed a duty on Trustmark to negotiate in good faith
to assume the underlying policies as soon as possible.
Applying the duty to negotiate in good faith, this Court finds that if
Trustmark would have refused to execute the Final Purchase Agreement, it
faced a real possibility of an action for breach of this duty and
possibly for breach of the Letter of Intent. As required by the Letter of
Intent, Trustmark had to negotiate for the assignment of existing
reinsurance policies from Lincoln National and Swiss Re. The fact that
Trustmark had to make certain concessions to receive these assignments
does not appear to this Court to be grounds for Trustmark to have pulled
out of the Final Purchase Agreement. Likewise, the fact that Trustmark
renegotiated a slight reduction in the purchase price from the Letter of
Intent does not appear to be material. As for the delay in executing the
Final Purchase Agreement, this appears to have been partly the result of
Trustmark undertaking its duty to negotiate in good faith to resolve the
above two issues. Moreover, because both parties mutually agreed to waive
the signing date, which was permitted under the Letter of Intent (Def.'s
Ex, 2, at ¶ 15), the fact the Final Purchase Agreement was executed
at a latter date does not appear to have been a breach of the Letter of
Intent. Accordingly, based on these considerations, this Court agrees
with the opinion of Trustmark's in-house attorney that Trustmark would
have likely faced a civil suit if it had pulled out of the deal.
Moreover, this Court notes that on February 23, 1999, Cologne reviewed
a draft of the
Final Purchase Agreement and did not voice any objections to the
issues it now contends were grounds for Trustmark to terminate
negotiations. Indeed, after reviewing a draft of the Final Purchase
Agreement, Cologne's Perkins wrote on the draft that "[w]e'll end up with
a retro from Trustmark following this agreement." (Pl's Ex. 32.)
Accordingly, this Court rejects Cologne's contention that Trustmark was
not required to enter into the Final Purchase Agreement because it did
not comply with the terms of the Letter of Intent and finds that
Trustmark has established that it relied on Cologne's promise to share in
the risk of reinsuring the Hartford Block to its detriment.
II. Partial Performance Exception to the Statute of Frauds
Cologne also contends that Trustmark has not established that the
partial performance exception bars Cologne from asserting the statute of
frauds. In a prior Memorandum and Order, this Court held that "[t]o take
a contract out of the statute of frauds under the partial performance
exception, the party seeking enforcement of the alleged contract must
show that the acts alleged as partial performance were "attributable
exclusively to the contract." 2001 WL 1268539, at *12. In finding that
there was a question of fact as to whether the partial performance
exception applied, this Court noted "that if the evidence at trial shows
that Trustmark entered into the Letter of Intent with the intention of
insuring 100% of the block itself, then the partial performance
exception will not preclude the operation of the statute of frauds.
Id. at 21, n.5.
Cologne now contends that the partial performance exception does not
apply because the evidence at trial failed to show that Trustmark's
execution of the Letter of Intent "was attributable exclusively to an
alleged agreement with Cologne. According to Cologne, the evidence at
trial shows that: (1) Trustmark's signing of the letter of intent was not
required by its
agreement with Cologne; and (2) Trustmark would have pursued the
transaction regardless of Cologne's participation.
The Court finds each of these contentions unavailing. As explained
above, the evidence at trial showed that Trustmark executed the Letter of
Intent as part of its agreement with Cologne in splitting the risk on the
Hartford Block. Likewise, after reviewing the evidence, this Court finds
that although Trustmark employees did testify that Trustmark "could have"
completed the transaction on its own, without Cologne, they would not
executed the Letter of Intent without believing that Cologne intended to
share 50% of the risk. Consequently, this Court finds that the evidence
at trial does not show that Trustmark entered into the Letter of Intent
with the intention of insuring 100% of the block itself, and therefore,
the partial performance exception to the statute of frauds precludes
Cologne from asserting the statute of frauds as to the claim for
For the foregoing reasons, the Court DENIES Cologne's Amended and
Restated Motion for Judgment as a Matter of Law [89-1, 92-1].