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STEADFAST INSURANCE COMPANY v. AUTO MARKETING NETWORK

January 26, 2004.

STEADFAST INSURANCE COMPANY, Plaintiff,
v.
AUTO MARKETING NETWORK, INC. and IMPERIAL CREDIT INDUSTRIES, INC., Defendants



The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge

RULINGS ON MOTIONS IN LIMINE

The following rulings are entered on Steadfast's motions in limine:
A. Motion in Limine No. 1 for pre-trial rulings regarding the application and scope of 720 ILCS 5/46-(b).*fn1
In this motion Steadfast seeks an order (1) determining that § 5/46-5(b) imposes liability only for the "bad faith" filing of a claim under the Illinois Insurance Fraud Statute and not for the alleged "bad faith" assertion of alter ego liability or any other procedural device designed to pierce the corporate veil; (2) determining that under the Petition Clause of the First Amendment Page 2 to the United States Constitution and the Noerr-Pennington doctrine, that no liability may be imposed upon Steadfast for filing its alter ego claim against Imperial unless the court first finds that Steadfast's claim was objectively baseless; (3) determining that the penalty imposed under § 5/46-5(b) should be calculated as twice the value of the property claimed through the alleged false insurance claim, and barring Imperial from introducing any evidence or making any argument that the penalty is twice the value of the treble damages Steadfast asserted in its insurance fraud claim; and (4) determining that the value of the property claimed through the alleged false insurance claim is the value of the amount of insurance benefits claimed by Steadfast to have been wrongfully obtained through a false insurance claim, and, in the event Imperial's counterclaim goes to the jury, submitting to the jury the issue of the value of the property claimed with appropriate instructions.*fn2
 
1. Whether § 5/46-5 liability extends to the bad faith assertion of alter ego liability.
  Steadfast submits, for the first time, that it never sued Imperial for insurance fraud under ¶ 5/46-5(a) but instead only sought to hold it liable under a piercing the corporate veil theory. Steadfast asserts that this attempt to impose alter ego liability, at least under applicable California law, is but a procedural device and not a substantive claim. See Henessey's Tavern Inc. v. American Filter Co., 204 Cal.App.3d 1351, 1358-59 (1988). Because Steadfast contends that Page 3 Imperial has not been sued under § 5/46-5(a), it argues that no liability can be imposed under § 5/46-5(b).

  As Imperial points out, however, Steadfast has already admitted that it sued Imperial for insurance fraud under § 5/46-5(a). For example, in Steadfast's answer to Imperial's counterclaims, Steadfast denied the allegations except that it "admits that the Complaint sought relief under 720 ILCS 5/46-5(a) against AMN and Imperial." Steadfast's admission in its answer is binding. See, e.g., Keller v. United States, 58 F.3d 1194, 1198 n.8 (7th Cir. 1995) ("Judicial admissions are formal concessions in the pleadings . . . that are binding upon the party making them."). Steadfast also sought relief in its Amended and Second Amended Complaints against both AMN and Imperial for "three times the value of any and all property wrongfully obtained by defendants, and twice the value of any and all property attempted to be gained by defendants. . . ." (Am. Compl. at 31 ¶ (b).) This language is identical to the relief provision of § 5/46-5(a). Finally, Steadfast pled as an affirmative defense to Imperial's counterclaim that Imperial was barred from recovery because of its "direct and indirect participation in the ongoing fraud alleged in the Second Amended Complaint and on account of its ratification of that fraudulent conduct." (Ans. at 4.) The fraud of the Second Amended Complaint is the claim under § 5/46-5(a). Accordingly, this argument is rejected.

 
2. The Petition Clause of the First Amendment to the United States Constitution and the Noerr-Pennington doctrine.
  Steadfast next asserts that Imperial must establish that Steadfast's § 5/46-5(a) claim was "objectively baseless" so as to satisfy the requirements of the Noerr-Pennington doctrine. In Eastern R.R. Presidents Conference v. Noerr Motor Freight Co., 365 U.S. 127 (1961) and Page 4 United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965), the Supreme Court held that genuine attempts to lobby or influence the legislature or political process could not serve as the basis for Sherman Act violations. Noerr Motor Freight Co., 365 U.S. at 138 ("[T]he Sherman Act does not apply to the activities of the railroads at least insofar as those activities comprised mere solicitation of governmental action with respect to the passage and enforcement of laws."); Pennington, 381 U.S. at 670 ("Noerr shields from the Sherman Act a concerted effort to influence public officials regardless of intent of purpose."). These ruling were based in part on the Petition Clause of the First Amendment in that the Court would not "lightly impute to Congress an intent to invade . . . freedoms protected by the Bill of Rights, such as the right to petition [the Government for redress of grievances]." BE & K Constr. Co. v. National Labor Relations Bd., 536 U.S 516, 525 (2002) (citing Noerr, 365 U.S. at 136). The Petition Clause notwithstanding, however, the Court made clear in Noerr that activities which are "a mere sham" are not protected under the right to petition government. Noerr Motor Freight, Inc., 365 U.S. at 145.

  The Court in California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508 (1972), later made clear that the right of access to the courts is protected by the Petition Clause. The Court noted that it "would be destructive of rights of association and of petition to hold that groups with common interests may not, without violating antitrust laws, use the channels and procedures of state and federal agencies and courts to advocate their causes and points of view respecting resolution of their business and economic interests vis-a-vis their competitors." Id. at 511. The Court nevertheless found that for purposes of the motion at issue plaintiffs had sufficiently alleged that defendants' actions fell within the "sham exception in the Noerr case, as Page 5 adapted to the adjudicatory process." Id. at 516. In Professional Real Estate Investors v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993), the Court outlined its two-part test for "sham" litigation. It noted that the law suit first "must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits." Id. at 61. Assuming that the objective test is passed, the Court then counseled that a litigant's subjective motivation may be examined.*fn3 Id.

  Neither of the parties presents particularly persuasive reasons as to why Noerr-Pennington either is or is not applicable here. Steadfast asserts conclusionally that it applies, although it cites no case analogous to this one. Yet, the Supreme Court's recognition in BE & K Constr. Co. that Rule 11 sanctions are not implicated in Noerr-Pennington situations would seem to allow the doctrine to be applied consistently with statutes such as 720 ILCS 5/46-5(b) that attempt to regulate frivolous litigation. 536 U.S. at 537 ("[N]othing in our holding today should be read to question the validity of common litigation sanctions imposed by courts themselves-such as those authorized under Rule 11 of the Federal Rules of Civil Procedure. . . ."). Imperial's view is that this doctrine must apply only in the antitrust setting or where significant public rights are implicated.*fn4 but it fails to provide a meaningful standard for this application (for example, it would seem that public rights are implicated in nearly every Page 6 suit), and no case actually limits the doctrine to public rights. See Video Int'l Prod., Inc. v. Warner-Amex Cable Communications, 858 F.2d 1075, 1084 (5th Cir. 1988) (applying Noerr-Pennington to tort claim and noting "[t]here is simply no reason that a common-law tort doctrine can any more permissibly abridge or chill the constitutional right of petition than can a statutory claim such as antitrust."). Nor does Imperial have a persuasive response to Steadfast's argument that barring suits under 5/46-5(b) could infringe the First Amendment rights of insurers to petition the government through filing of insurance fraud law suits.

  Nevertheless, even if the court is to assume that the Noerr-Pennington doctrine has some applicability here, the court believes the "objectively baseless" standard has already been satisfied. Steadfast's argument that this suit cannot be objectively baseless was specifically rejected in one of this court's earlier decisions. Steadfast maintains that Judge Aspen, to whom this case was originally assigned, determined that Imperial could not establish that Steadfast's alter ego claim failed as matter of law. According to Steadfast, because the alter ego theory of liability at least stated a claim, it cannot be objectively baseless. E.g., Harris Custom Builders, Inc. v. Hoffmeyer, 834 F. Supp. 256, 262 (N.D. Ill. 1993) ("An action that is well enough grounded, factually and legally, to survive a motion for summary judgment is sufficiently meritorious to lead a reasonable litigant to conclude that they had some chance of success on the merits."). However, that conclusion rests on the assumption that the inquiry should be limited to whether the claim itself, and not the original complaint, was objectively baseless. The court specifically noted in its summary judgment decision that "the operative complaint filing is the one that initiated the action, as the statute plainly states that `an insurance company . . . that brings an action in bad faith shall be liable. . . .'" Steadfast Ins. Co. v. Auto Mktg. Network Inc., Page 7 No. 97 C 5696, 2001 WL 881324, at *8 n. 19 (N.D. Ill. Aug. 2, 2001). Moreover, the court noted that the original complaint "contained no substantive allegations against Imperial." Id. at *8. Accordingly, the court is satisfied that the objectively baseless element has been met, and the jury shall decide Steadfast's subjective motivation to determine whether its original complaint was in fact brought in bad faith.

 3. Damages under § 5/46-5(b).

  Under § 5/46-5(b), "an insurance company . . . that brings an action against a person under subsection (a) of this Section in bad faith shall be liable to that person for twice the value of the property claimed, plus reasonable attorney's fees." In determining damages in this case, the parties dispute the phrase "value of the property claimed." According to Steadfast, the term "value of the property claimed" refers to the insurance benefits claimed by AMN in an allegedly false claim. Thus, if AMN submitted a claim for $4 million, and Steadfast maintained in bad faith that this claim was a knowing attempt to assert control over its property, AMN would be awarded $8 million or "twice the value of the property claimed."

  Imperial views the statute differently. Imperial believes the phrase "value of the property claimed" refers to the damages that Steadfast sought in its statutory fraud claim under § 5/46-5(a). Thus, if Steadfast brought an action for $12 million under part (a) of the statute (which amount would either be two or three times the value of the property obtained or attempted to be obtained through fraud), then Imperial could seek double that amount, or $24 million. Imperial's view could result in an insured bringing an action under § 5/46-5(b) being awarded six times the value of the property allegedly fraudulently obtained or attempted to be obtained. Page 8

  Steadfast's construction of the statute, and its calculation of damages, is more persuasive. This conclusion stems in large part from a plain reading of part (a) of the statute in relation to part (b). Part (a) makes numerous references to a "claim," and states that when a "false claim" is made, the insurance company can recover either twice the value of the property wrongfully obtained or attempted to be obtained. Part (b), in apportioning the liability of an insurance company that brings an insurance fraud action in bad faith, seeks to hold that insurance company liable for twice the value of the property claimed. Imperial believes that because part (b) refers to the value of the property claimed, and not the language of the property attempted to be obtained used in part (a), the legislature made a conscious decision to define damages in part (b) differently from part (a). But both parts (a) and (b) consistently speak of the "value of the property" whether it be obtained, attempted to be obtained or claimed.

  There is no dispute that in part (a) the "value of the property" refers to the underlying benefits claimed by the insured, and the courts finds unpersuasive Imperial's view that the "value of the property" is defined differently simply because the term "claimed" is used. The term "claim" is used in numerous portions of part (a) and in each instance refers to an insured asserting its rights under an insurance policy. Reading the use of the term "claimed" in part (b) to also refer to the amount an insured seeks under its insurance policy is consistent with part (a), even if the statute in part (a) also refers to the amount "wrongfully obtained" or "attempted to be wrongfully obtained."

  Moreover, notwithstanding the use of "obtained" or "attempted to be obtained" in part (a) and "claimed" in part (b), there is little to support Imperial's theory that the damages amount the legislature intended in part (b) was actually double the treble damages applied in part (a). Page 9 Indeed, as Steadfast points out, if the legislature intended Imperial's view, it could have spelled it out quite easily by remarking that the damages recoverable in part (b) would be twice the damages sought in the action brought under part (a). Instead, part (b) continues to refer to the "value of the property" as that term is used throughout part (a). Accordingly, the court believes it clear that the term "value of the property claimed" refers to the ...


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