United States District Court, C.D. Illinois
March 16, 2004.
Mutual Medical Plans Inc. and Ron Jones, Individually, Plaintiff, V. County of Peoria, Kevin Lyons, and Frank Walter, Defendant County of Peoria, Counter-Plaintiff, V. Mutual Medical Plans, Inc. and Ron Jones, Individually, Counter-Defendant
The opinion of the court was delivered by: MICHAEL MIHM, District Judge
Before the Court is Defendant Frank Walter's Motion for Summary
Judgment [#86]. For the following reasons, the Motion is GRANTED. The
Court declines to retain jurisdiction over the state law Counter-Claim
and, therefore, it is DISMISSED without prejudice so that it may be
re-filed in state court.
This case arises out of the criminal investigation and prosecution of
Plaintiff, Ron Jones ("Jones"), the owner and president of Mutual Medical
Plans, Inc. ("Mutual Medical" or "The Compmany"). Mutual Medical is an
Illinois corporation whose primary business is the third party
administration of employer-sponsored health benefit plans. Kevin Lyons
("Lyons") is the Peoria County State's Attorney and Frank Walter
("Walter") is an investigator employed by that office.
In its capacity as a third party administrator, Mutual Medical also
brokered Safeco. Company's ("Safeco") reinsurance products to the health
plans that it serviced. This relationship was somewhat unique in the
sense that it granted Jones the right to approve increases in the rates
charged by Safeco. for reinsurance to Jones' clients. The ability to
increase the rates was contingent upon Jones' block of business, which at
the time was comprised of approximately 63 employer health benefits
plans, not exceeding certain levels of loss as a group.
In addition to commissions paid from Safeco. to Jones and Mutual
Medical, Mutual Medical was eligible to receive an annual "profit bonus"
equal to one half of the profit earned by Safeco. on Jones' reinsurance
clients after deductions were made for losses, reserves, conversion
charges, pooling charges, and a target profit established by Safeco.
Between 1995 and 1998, Mutual Medical's profit bonuses were $260,361,
$840,541, $601,730 and $523,624, respectively. The Company did not
receive a profit bonus in 1999.
Mutual Medical, as a third party administrator, was responsible for
processing and paying medical charges of employees and dependants who
were covered by the health care plans it serviced. The Company was also
responsible for making sure that its clients obtained reimbursement from
the reinsurer, Safeco, whenever the claims incurred by an individual
covered under a client's health care plan exceeded the plan's "stop-loss"
or deductible point in a particular premium year. The profit bonuses
received by Mutual Medical were largely dependent upon the total dollar
amount in reinsurance claims that were paid by Safeco. within a calender
The background for this lawsuit centers on three cases in which Mutual
Medical served as the third party administrator for health care plans
purchased from Safeco. These three cases will be referred to as the
Wolfe, Boren, and Wilson cases.
The Wolfe Case
From July 1, 1992, to April 30, 1998, Mutual Medical served as the
third party administrator for the self-funded benefit plan offered by PMP
Fermentation Products, Inc. As part of its plan, PMP purchased individual
excess loss insurance coverage from Safeco, under which Safeco. would
reimburse PMP for claim payments made in a reinsurance contract year
(July 1st to June 30th) above the first $20,000 per person. On August
25, 1996, Mindy Wolfe, the wife of PMP employee Mitch Wolfe, prematurely
gave birth to twin boys at OSF St. Francis Hospital (OSF) in Peoria. Drew
and Derek Wolfe were hospitalized from August 25, 1996, through November
The OSF bills for the twins collectively totaled over $309,000. After
receiving the bills in the fall of 1996, and early 1997, Jones and Mutual
Medical claimed that the bills were excessive and, therefore, did not
submit them to Safeco. for reimbursement.
On June 27, 1997, Jones requested that Safeco. extend the time period
for PMP to submit claims for reinsurance on the Wolfe twins an additional
12 months, so that PMP would not be charged another set of deductibles.
In his letter requesting the extension, Jones suggested that the
potential reinsurance claim savings on the case was $200,000 or more.
Safeco. agreed to extend the time period, but only for an additional two
months. Without notifying PMP officials*fn1, in July of 1997 Mutual
Medical hired a company, Preferred Payment Systems (PPS), to attempt to
negotiate the bills, but OSF refused to consider that option and, the
bills remained unpaid prior to the expiration of the extension period.*fn2
On October 29, 1997, Jones wrote a check from Mutual Medical's account
to OSF for partial payment of the Wolfe's bill in the amount of $145,904
*fn3 and an additional amount of $3,445.47 to the Wolfes to reimburse
them for their expenses. The bill was not submitted to Safeco for
On March 27, 1998, PMP terminated Mutual Medical as its third party
administrator for reasons unrelated to the Wolfe case. Shortly
thereafter, PMP Human Resources Director Randy Niedermeier
("Niedermeier") spoke with Jones, and it was revealed to PMP, for the
first time, that the Wolfe matter was still unresolved by Mutual
On April 30, 1998, Niedermeier sent a letter to Jones demanding that
Mutual Medical pay the balance of the Wolfe claim immediately. Shortly
thereafter, the remaining balance of $163,400 was paid, and the charges
were submitted to Safeco. for reimbursement. Safeco. reimbursed PMP
$123,400 ($163,400-$40,000 dedectible) on July 15, 1998.
If the bills had been paid by Mutual Medical in the first eight months
of 1997, Jones' profit bonus would have been reduced by $154,652.
However, since Mutual Medical ultimately submitted $123,400 to Safeco.
for reimbursement in July, 1998, Jones' 1998 profit bonus was decreased
by only $61,700. As a result, the "net" increase to Mutual Medical's
profit bonus was $92,952. Because the Wolfe's bills were not paid during
the 1996-1997 policy year, PMP was forced to pay an additional $20,000
deductible for each twin.*fn4
The Wilson Case
Peoria County has a self-funded employee benefit plan to provide health
insurance benefits to its employees and their dependents. Mutual Medical
served at all relevant times as the third party administrator. Peoria
County purchased excess loss insurance coverage from Safeco, which
provided reimbursement for payments made in a reinsurance contract year
above the first $150,000 per person.
On May 13, 1998, Tanisha Wilson, the wife of a Peoria County employee,
prematurely gave birth to her daughter, Aalis, at OSF. Aalis remained at
the hospital until she was discharged on July 23, 1998. Payment was made
on the first and third interim hospital bills, totaling approximately
$118,000, in August and October, 1998. OSF records indicate that on July
2, 1998, the hospital sent Mutual Medical, by certified mail, the second
interim bill in the amount of $73,228 for the care provided to Aalis.
Although OSF records also indicate that a Mutual Medical employee
received and signed for this certified mailing on July 16, 1998, Mutual
Medical claims that it never received it.*fn5
On February 10, 1999, an OSF representative called Jones on an
unrelated matter, at which time Jones told the representative that if OSF
had any unpaid bills for Mutual Medical's clients, it should re-bill the
account. A reprint of the $73,228 bill was mailed to Mutual Medical on
February 12, 1999, and was paid in full shortly thereafter.
Because the second interim bill was not paid by Mutual Medical in 1998,
Peoria County never reached its "stop-loss" point of $150,000 on expenses
for Aalis Wilson. If Mutual Medical had paid OSF's second interim bill of
$73,228 in 1998, Peoria County would have been entitled to receive
reimbursement from Safeco. in the amount of $61,378, and Jones' profit
bonus would have been reduced by $30,689.
The Boren Case
Mutual Medical was the third party administrator for Pike County's
benefit plan. Pike County ("Pike") also purchased individual excess loss
insurance coverage from Safeco. which would reimburse Pike for payments
made in a reinsurance contract year above the first $15,000 per person.
An employee of Pike, Janet Boren ("Boren"), received knee surgery on
October 21, 1999, at Hannibal Regional Hospital ("Hannibal"). Hannibal
mailed Mutual Medical a bill on November 4, 1999, in the amount of
$14,338.50. However, because this bill did not include an itemization of
the medical services provided, Mutual Medical returned that bill with a
request, as it claims was customary, that the hospital provide an
itemization of the services provided. Hannibal sent Mutual Medical an
itemized bill on January 12, 2000. Mutual Medical paid the bill in full
on January 27, 2000.
Boren had also incurred other medical bills in connection with her knee
surgery that were paid by Mutual Medical in 1999. Thus, Pike County could
have recouped a portion of the $14,338.50 bill, had the bill been paid in
1999. Because of the delay in payment, Pike County lost $3,451 in
reinsurance that it otherwise would have received from Safeco.
Peoria County Initiates the Investigation
In May of 1999, Peoria County's Risk Management Assistant, Sandy
Cheeseman, reported to the Management Services Subcommittee of the Peoria
County Board that the County lost "a considerable reimbursement" because
Mutual Medical had not paid the claims incurred at OSF by the Wilsons in
a timely manner. Cheeseman also noted that Mutual Medical paid the third
interim bill first and the first interim bill second and that, even if
Mutual Medical had not received the second bill, "they should have
questioned the service dates on the [third interim] billing which was the
During the meeting, the Committee chairman informed the Committee that
Jones was both an agent of the County's reinsurer Safeco, and that Jones
received a profit sharing percentage if the payouts made by Safeco. in a
given year did not exceed certain dollar amounts. According to the
minutes of that meeting, "the Committee felt that this was a conflict of
interest" and that the State's Attorney's office should investigate the
matter. The request was memorialized in a formal letter to the State's
Shortly after the May 25, 1999, Committee meeting, the State's
Attorney's Office began a criminal investigation of Jones. Walter
conducted the investigation, which began on or about June 28, 1999. On
October 14, 1999, Lyons contacted Safeco's in-house legal counsel and
advised her that Jones had held up the Wilson bills in 1998. On October
18, 1999, Lyons sent Safeco's counsel a letter indicating his belief that
Jones had acted in a deliberate manner, causing Peoria County a total
loss of $63,654. The letter asked for the "continued cooperation of
Safeco. personnel" as the investigation by the State's Attorney's Office
continued. After learning of Peoria County's investigation of Mutual
Medical and Jones, Safeco. opened its own concurrent investigation.
In March of 2000, Safeco. scheduled an audit of Mutual Medical for the
week of April 24-28, 2000. On April 18, Walter faxed to Safeco
Investigator Joe Kemper ("Kemper") more than 25 pages of material
regarding the Wolfe claim, telling Kemper that he might find the
"material interesting to review before arriving." From this and other
communications, Kemper had complied a list of files of interest that the
audit group would review.*fn6 In the morning of the first day of the
audit, Kemper and Safeco. auditor Mark Olson ("Olson") arrived at Mutual
Medical's offices and indicated that they were there to review files as
part of a routine audit, which normally would cover only pending
reinsurance claims. Over the course of the week long audit, the Safeco
employees were given access to numerous files, including the closed claim
file relating to Drew and Derek Wolfs.*fn7 That evening, the Safeco
employees, now joined by auditor Joanna Rhule ("Rhule"), met with Walter
over dinner, where the group discussed what to look for in the Wolfe
file. In the evening of the second day of the audit, April 25, the Safeco
employees met once again with Walter and the group discussed the day's
audit. During the meeting, Walter requested a copy of the notes Rhule
took when reviewing the Wolfe file, which she provided on April 28,
2000, after she received the authority to do so from Olson.
At the conclusion of the meeting on April 25, Kemper informed Walter
that he had taken the Wolfe file with him when he left Mutual Medical's
offices around 5:30 pm. Unknown to Walter, Kemper had neither asked for,
nor received Mutual Medical's consent to remove the file. When asked by
Walter whether he had the legal right to take the file, Kemper assured
Walter that he did. Walter then allowed Kemper to copy the file at the
State's Attorney's Office. It is undisputed that Walter had no knowledge
that Kemper was going to remove or had removed the file prior to that
point in time. It is also undisputed that Walter did not review the file
or request a copy. At some point that evening, a Mutual Medical employee
discovered that the Wolfe file was missing and contacted Olson at his
hotel. Olson subsequently spoke with Kemper, who acknowledged that he had
it in his possession. Kemper returned the file to Mutual Medical's
offices later that same evening.
In May and June, 2000, Assistant State's Attorney Stephen Pattelli
presented the matter to the grand jury.*fn8 Walter, as the sole witness,
provided testimony, on five separate occasions, relating to the Wolfe,
Wilson, and Boren cases for the purpose of procuring an indictment
against Jones. On June 27, 2000, the grand jury indicted Jones on seven
counts of theft and a judge issued a warrant for his arrest. Upon
learning of his indictment, Jones turned himself in to Walter at the
Peoria County Jail. He was booked, posted bail, and was released
approximately 30 minutes later. The criminal case against Jones proceeded
to a jury trial on February 26, 2001. Walter did not testify at the
trial. On March 6, 2001, the judge dismissed some of the charges at the
close of the State's case. Three days later, the jury returned "not
guilty" verdicts with respect to the remaining charges. Following these
events, on November 26, 2001, Mutual Medical and Jones filed a Complaint
under § 1983 asserting violations of the Fourth Amendment, as well as
state law malicious prosecution claims. Lyons, Walter, and Peoria County
filed a motion to dismiss, which this Court granted, without prejudice,
on August 28, 2002. Mutual Medical and Jones then filed an Amended
Complaint on October 11, 2002. On March 1, 2002, Peoria County was
voluntarily dismissed as a defendant, without prejudice.
Meanwhile, on February 4, 2002, Peoria County filed a Counter-Claim
against Mutual Medical and Jones. In an Order filed on August 10, 2002,
the Court granted the Plaintiff's Motion to Dismiss the Counter-Claim,
without prejudice. On October 9, 2002, Peoria County filed an Amended
Counter-Claim alleging breach of contract and breach of fiduciary duty.
The Court granted the Plaintiff's Motion to Dismiss Count II (breach of
fiduciary duty) of the Counter-Claim in an Order issued on February 24,
On July 9, 2003, the Court accepted a stipulation filed by the parties,
whereby a Motion for Rule 11 Sanctions, previously filed by Lyons, was
withdrawn and, in turn, Lyons was dismissed from the case with prejudice.
Walter filed a Motion for Summary Judgment as to all of the claims
asserted by the Plaintiffs. This Order follows.
Standard of Review
Summary judgment should be granted where "the pleadings, depositions,
answers to interrogatories and admissions on file, together with the
affidavits, if any, show there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(c). The moving party has the responsibility of
informing the Court of portions of the record or affidavits that
demonstrate the absence of a triable issue. Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). The moving party may meet its burden of showing
an absence of disputed material facts by demonstrating "that there is an
absence of evidence to support the non-moving party's case." Id. at 325.
Any doubt as to the existence of a genuine issue for trial is resolved
against the moving party. Anderson v. Liberty Lobby. Inc., 477 U.S. 242.255
(1986): Cain v. Lane, 857 F.2d 1139, 1142 (7th Cir. 1988).
If the moving party meets its burden, the non-moving party then has the
burden of presenting specific facts to show that there is a genuine issue
of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-87 (1986). Federal Rule of Civil Procedure 56(e)
requires the non-moving party to go beyond the pleadings and produce
evidence of a genuine issue for trial. Celotex, 477 U.S. at 324.
Nevertheless, this Court must "view the record and all inferences drawn
from it in the light most favorable to the [non-moving party]." Holland
v. Jefferson Nat. Life Ins. Co., 883 F.2d 1307.1312(7th Cir. 1989).
Summary judgment will be denied where a reasonable jury could return a
verdict for the non-moving party. Anderson v. Liberty Lobby. Inc.,
477 U.S. 242, 248 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928,
931 (7th Cir. 1995).
I. Fourth Amendment Claims
Count I of the Plaintiffs' Amended Complaint alleges violations of the
Fourth Amendment based on Walter's role in the audit of Mutual Medical's
files by employees of Safeco. during the week of April 24, 2000.
Specifically, the Plaintiffs allege that Safeco. officials acted as
agents of the State during the course of the Mutual Medical audit and
that the officials improperly gained access to and seized information at
Walter's request. Although the Complaint and earlier pleadings did not
clearly define the scope of the Fourth Amendment claims, it became clear
at oral argument, based on questions posed by the Court to Plaintiffs'
counsel, that the claims include not only the seizure and removal of the
Wolfe file, but also the search of the Wolfe file and other files and
documents located in Mutual Medical's office. After much reflection, the
Court finds that Walter's role in the audit did not transform the private
search into one controlled by the government because the purpose of
Safeco's cooperation with the State's Attorney's office was not primarily
to assist law enforcement, but to serve Safeco's independent, legitimate,
and private interests.
For several months prior to the audit, Safeco. maintained significant
interaction with Peoria County officials, including Walter, and there is
no dispute that Safeco. could properly cooperate with the State's
Attorney's Office by exchanging information concerning Mutual Medical
and Jones.*fn9 By the time the Safeco. employees arrived in Peoria, the
record reflects that Kemper had compiled a list of files, based in part
on information received from Walter, that the audit would cover. That
list was presented to Mutual Medical employees on the morning of the
first day of the audit. Safeco. officials also met with Walter in
the evenings of the first day and second day of the audit, at which time,
Walter and the Safeco. employees discussed the day's findings.
Mutual Medical and Jones go to great lengths presenting evidence,
including copies of letters, faxes, handwritten notes, e-mails, and
signed releases, designed to show collusion between Safeco. officials on
one hand and Kevin Lyons and Frank Walter on the other. However, the only
defendant remaining in this case is Frank Walter and the actions of a
prior defendant may not necessarily be imputed to him.
Although the Plaintiffs claim there is some dispute as to whether
Safeco. had right of access to every file in Mutual Medical's offices,
the record suggests otherwise. For example, PMP's Excess Loss Insurance
Policy states that PMP "must allow us to review and copy, during normal
business hours, all records affecting our liability under the contract."
(Pl. Ex. 50, pg.888). Furthermore, the contract states that "If you use
the services of an administrator to perform any functions for your plan,
the administrator performs as your agent."*fn10 (Pl. Ex.50, pg.888). As
PMP's agent, Mutual Medical was required to share any file that affected
Safeco's liability.*fn11 *fn12 In addition, Jones acknowledged in his
deposition that Safeco. had a right to review Mutual Medical's files. The
issue, therefore, is not whether Safeco. had access to Mutual Medical's
files, but, instead, whether through Walter's interaction with the Safeco
employees, they were transformed into agents of the state for the
purposes of the Fourth Amendment.
A search or seizure by a private party does not implicate the Fourth
Amendment unless the party is acting as an "instrument or agent" of the
government. See, United States v. Shahid, 117 F.3d 322, 325 (7th Cir.
1997). Pre-search contact between a government official and a private
citizen, whether or not intended by the official to prompt the citizen to
render some type of assistance, does not, by itself, turn a private party
into an agent of the government. See, generally, 1 Wayne R. LaFave,
Search and Seizure: a Treatise on the Fourth Amendment § 1.8(c),
at239-247(3ded. 1996). In determining whether a private party acted as an
"instrument or agent" of the government, the Seventh Circuit has devised
a test involving certain factors, including whether the government knew
of or acquiesced in the intrusive conduct; whether the private party's
purpose in conducting the search was to assist law enforcement or further
its own ends; and whether the government requested the action or offered
the private actor a reward. U.S. v. Crowley, 285 F.3d 553, 558 (7th Cir.
2002). Such an analysis is conducted on a case-by-case basis in light of
all the circumstances. Id.
The first Crowley factor, whether the government knew of or acquiesced
in the intrusive conduct, clearly weighs in favor of the Plaintiffs.
Although the record does not support a finding that Walter specifically
requested that an audit be conducted by Safeco, when one was scheduled,
Walter concedes that he specifically requested that certain files be
reviewed by the auditors. If something unusual was found during the
review, Walter knew that the auditors would report the findings back to
him and, on at least one occasion, he even asked one of the auditors for
(and received) a copy of the notes she took when reviewing the Wolfe
With regard to the second Crowley factor, whether the private party's
purpose in conducting the search was to assist law enforcement or further
its own ends, Safeco's legitimate and independent interest in conducting
the audit prevents the search of the files from being classified as
governmental, rather than private, for the purposes of the Fourth
Amendment. There can be no real dispute that Safeco. initiated its own
investigation in part to look into the possibility of fraud and serve its
own interests, which, among others, must have included the protection of
its reputation, a desire to maintain honest business relationships, the
retention of its state issued licence to deal in the insurance industry,
and concerns of becoming a defendant in a civil suit filed by one of
With regard to the third Crowley factor, there is no evidence in the
record, either direct or circumstantial that Safeco. was ever rewarded
for their cooperation with the government. Nor is there any evidence that
Safeco. averted punishment by cooperating with law enforcement. In fact,
there is no indication that the State's Attorney ever suspected that
Safeco. was complicit in Mutual Medical's alleged scheme to defraud its
clients. Under the totality of the circumstances, the Crowley factors
support the finding that the Safeco employees were not Walter's agents
when conducting the audit of Mutual Medical.
This result appears to be in line with other Seventh Circuit cases
addressing the same issue, albeit under slightly different factual
circumstances. For example, in United States v. Koenig, 856 F.2d 843 (7th
Cir. 1988), the Seventh Circuit held that, even in light of the private
parcel carrier's historical maintenance of good relations with law
enforcement officials and employee's past cooperation with such
officials, a security employee of the carrier was not acting as a de
facto government agent when he opened a suspicious package and discovered
cocaine. In that case, Judge Coffey held that mere cooperation was not
enough to transform a private search into a governmental search, for a
criminal defendant "must prove some exercise of government power over the
private entity, such that the private entity may be said to have acted on
behalf of the government rather than for its own private purposes."
Koenig, 856 F.2d at 849. "Mere knowledge of another's independent
action, does not produce vicarious responsibility absent some
manifestation of consent and the ability to control." Id. at 850.
Although the facts in Koenig lack a specific request to assist law
enforcement, that case is nonetheless instructive on the factor of
control. There is no evidence in this record that Walter exhibited any
level of control over the Safeco. auditors. Although Walter acknowledged
that he requested that the auditors review certain files during the
audit, there is no indication that Safeco's decision to cooperate was
anything but voluntary.
Similarly, in Shahid, the Seventh Circuit held that shopping mall
security officers were not acting as instruments or agents of the
government when they stopped and searched a man, who was suspected of
shoplifting, because their primary role was to provide safety and
security for all persons on mall property. There, Judge Cummings found
that the fact that a private party "might also have intended to assist
law enforcement does not transform him into a government agent so long as
the private party had a legitimate independent motivation for engaging in
the challenged conduct." Shahid, 117 F.3d at 326.
Unlike the case currently before the Court, in Shahid there was no
request for the security guards to cooperate with law enforcement. This
factual disparity is of no controlling consequence, however, because in a
situation where the government knows of or acquiesces in a private
party's conduct, the private party under those circumstances is typically
induced to conduct a private search or seizure with the government's
promise of a reward or the threat of a punishment. Id. at 327. In this
case, Safeco's decision to conduct an audit was based neither on
expectation of a reward, nor out of fear of punishment, but entirely upon
its legitimate and independent interests.
Finally, in United States v. Feffer, 831 F.2d 734 (7th Cir. 1987), the
Seventh Circuit held that a taxpayer's employee acted voluntarily and
without government inducement when, on several occasions, she delivered
incriminating company documents to the Internal Revenue Service. Although
there was no specific request for cooperation in Feffer, the Court found
that the IRS agents, at a minimum, encouraged the private party's
participation, and, by bringing a microfilm copier to their meeting, there
was no doubt that the agents expected her to produce the documents. There
was also evidence that the woman was told about how she could become a
numbered informant and the rewards for which she could apply. Feffer, at
831 F.2d at 736. Even in light of this evidence, the Seventh Circuit
affirmed the district court's finding that the informant's actions were
purely voluntary and not the result of government inducement because the
informant produced the documents to the government out of a fear of being
held liable for her part in the tax fraud scheme being carried out by her
If anything, the facts in Feffer more closely resemble the factual
circumstances in the current case when compared with others addressing
this Fourth Amendment issue. In contrast to the occasional encounter
between private parties and law enforcement in other cases, like Feffer,
Walter had a prolonged relationship with Safeco. Additionally, in
Feffer, even though there was no actual request for documents, the
actions of the IRS agents are loosely analogous to Walter's conduct when
Walter specified what files should be reviewed. Finally, like the current
case, the private party's actions in Feffer were purely voluntary and not
the result of government inducement.
As the Seventh Circuit has reported, "a private citizen might decide to
aid in the control and prevention of criminal activity out of his or her
own moral conviction, concern for his or her employer's public image or
profitability, or even desire to incarcerate criminals, but even if such
private purpose should happen to coincide with the purposes of the
government, this happy coincidence does not make a private actor an arm
of the government." Shahid, 117 F.3d at 326. Because the Court finds, as
a matter of law, that the evidence does not support an agency
relationship between Walter and any Safeco. employee, there can be no
violation of the Fourth Amendment, and, therefore, no basis for civil
liability on this claim.
The Plaintiffs have also failed to present evidence demonstrating that
Kemper was acting as Walter's agent when the Wolfe file was removed from
Mutual Medical's office. There is no evidence in the record, either
direct or circumstantial, that Walter either knew of or acquiesced in the
removal of the Wolfe file. In fact, it is undisputed that Walter knew
nothing about Kemper's possession of the file until after it was removed.
And, when asked by Walter whether he had the legal right to take the
file, Kemper assured Walter that he did. Accordingly, there is no basis
for liability on the claim that the file was removed in violation of the
II. False Arrest
Count II of the Amended Complaint alleges that Jones was falsely
arrested in violation of the Fourth Amendment because his arrest was not
supported by probable cause. Jones argues that the grand jury indictment
and resulting arrest warrant do not shield Walter from this claim because
the record shows that he knowingly, intentionally, or with reckless
disregard for the truth made the arrest without probable cause.
Count II must be dismissed. Although the Plaintiffs label this cause of
action as one for "false arrest," it is actually a malicious prosecution
claim. Because Illinois law allows a common law cause of action for
malicious prosecution, a federal claim is prohibited. Newsome v. McCabe,
256 F.3d 747, 751 (7th Cir. 2001); Gauger v. Hendle, 349 F.3d 354, 359
(7th Cir. 2003).
A claim for false arrest is a claim for the harm of being unlawfully
imprisoned through some extrajudicial act that does not amount to legal
process, for example, when a police officer performs a warrantless arrest
without probable cause. Snodderly v. R.U.F.F. Drug Enforcement Task
Force, 239 F.3d 892, 900 (7th Cir. 2001). See, also, Porterfield v.
Lott, 156 F.3d 563, 568 (4th Cir. 1998); Singer v. Fulton County Sheriff,
63 F.3d 110, 117-18 (2nd Cir. 1995). A successful plaintiff can pursue
damages only for the detention that occurred "up until issuance of
process or arraignment, but not more." Snodderly, 239 F.3d at 900,
citing, Heck, 512 U.S. 477 (1994). In contrast, malicious prosecution
permits damages for "confinement imposed pursuant to legal process." Id.
In this case, Jones was indicted by the grand jury and an arrest
warrant was issued by a judge. The issuance of a warrant is "legal
process." Gauger, 349 F.3d at 361. Thus, the claim seeking damages for
unlawful confinement imposed pursuant to a warrant sounds not in false
arrest, but in malicious prosecution. Snodderly, 239 F.3d at 900.
When a state-law remedy exists for malicious prosecution, its existence
knocks out any constitutional tort of malicious prosecution, because due
process of law is afforded by the opportunity to pursue a claim in state
court. Newsome, 256 F.3d at 751. Illinois allows an action at common law
for the tort of malicious prosecution and the Plaintiffs have asserted
such claims in Counts VI-VIII of the Amended Complaint. Accordingly,
because the record is clear that the arrest of Jones occurred only after
the warrant for his arrest was signed by a judge, his claim for false
arrest must fail.
III. State Law Claims and Counter Claim
Title 28 U.S.C. § 1367 provides that a district court "may decline to
exercise supplemental jurisdiction" over pendent state-law claims if the
court has dismissed all claims over which it has jurisdiction. Wright v.
Associated Ins. Co. Inc., 29 F.3d 1244, 1250 (7th Cir. 1994), citing 28
§ 1367(c)(3). A district court should consider and weigh the factors of
judicial economy, convenience, fairness and comity in deciding whether to
exercise jurisdiction over pendent state-law claims. Id. at 1251, citing
Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988); Timm v. Mead
Corp., 32 F.3d 273, 277 (7th Cir. 1994). Finally, as a general rule, when
all federal claims are dismissed, the district court should relinquish
jurisdiction over pendent state-law claims rather than resolving them on
the merits. Wright, 29 F.3d at 1250, citing United Mine Worker of Am. v.
Gibbs, 383 U.S. 715, 726 (1996).
A. Malicious Prosecution
Counts VI-VIII of the Amended Complaint allege state law claims of
malicious prosecution. Although the Court would normally preserve the
Plaintiffs' state claims for review in state court, because all the
issues were included in the summary judgment briefs after the close of
discovery and they are capable of timely disposition, the Court will
exercise its discretion to address them. See Graf v. Elgin. Joliet & E.
Rv. Co., 790 F.2d 1341, 1347-48 (7th Cir. 1986).
Before engaging in an analysis of the malicious prosecution claim on
the merits, it is first necessary to address the issue of whether Walter
is entitled to absolute witness immunity for his grand jury testimony. If
Walter is absolutely immune from claims arising out if his grand jury
testimony, there can be no claim of malicious prosecution that survives,
because Walter did not testify at trial, and the record is silent as to
any post-indictment involvement that could be considered significant.
The question of whether grand jury witnesses enjoy absolute immunity
for their testimony is an open question in Illinois. Although the Seventh
Circuit has extended the Supreme Court's decision in Briscoe v. LaHue,
460 U.S. 325 (1983) (which held that immunity protects those who testify
at trial) to provide immunity from § 1983 for grand jury testimony, no
Illinois case extends the privilege to grand jury testimony. See, Kincaid
v. Eberle, 712 F.2d 1023 (7th Cir. 1983). In Fabiano v. City of Palos
Hills, 784N.E.2d 258 (lst Dist. 2003), while not deciding the issue
directly, the Illinois First District suggested, in dicta, that the
absence of cross-examination and the non-adversarial nature of grand jury
proceedings increase the risk that false testimony will go undetected and
militate against an extension of the absolute privilege.
Absent any authoritative Illinois case to the contrary, the Court finds
the Seventh Circuit's reasoning in Kincaid to be persuasive. As the
Seventh Circuit highlighted in its short opinion, at common law,
witnesses appearing before a grand jury were entitled to absolute
immunity. See Lake v. King, 1 Wms.Saund. 131, 132, 85 Eng.Rep. 137, 139
(K.B.1679); The King v. Skinner, 1 Lofft 55, 56, 98 Eng.Rep. 529, 530
(K.B.1772); Kidder v. Parkhurst, 3 Alien 393, 396 (Mass.1862); Schultz v.
Strauss, 127 Wis. 325, 328, 106 N.W. 1066, 1067 (1906). Legal history
aside, the policy reasons for absolute grand jury immunity are also
persuasive. A police officer who is threatened with a malicious
prosecution claim every time he/she testifies in a grand jury proceeding
will be "distracted from and impeded in the performance of his official
duties." Kincaid, 712 F.2d at 1024. Further, the Court is persuaded that
the "argument for absolute immunity is stronger in the grand jury setting
than in the trial setting, because false testimony before the grand jury
is less harmful than false testimony at trial; the grand jury can indict,
but cannot convict." Id. Finally, the risk that false grand jury
testimony will go undetected, as articulated in Fabiano, is lessened to
some extent as the case proceeds to trial because the Illinois discovery
rules expose the grand jury proceeding to light by entitling the defense
to a transcript of those portions of the proceeding that contain relevant
testimony of persons who the prosecuting attorney intends to call as
witnesses at trial. See Illinois Supreme Court Rule 412.
Accordingly, Walter is absolutely immune from liability resulting from
his testimony before the grand jury. Because the only significant role
Walter played in the prosecution of Jones that is established in this
record was his grand jury testimony, the allegations of malicious
prosecution set out against him in Counts VI-VIII must be dismissed.
Even if Walter were not protected by absolute immunity, the malicious
prosecution claim would fail on the merits. Under Illinois law, to state a
cause of action for malicious prosecution, a plaintiff must allege facts
showing:(1) the commencement or continuance of an original criminal or
civil judicial proceeding by the defendant; (2) the termination of the
proceeding in favor of the plaintiff; (3) the absence of probable cause for
such proceedings; (4) the presence of malice; and (5) damages resulting to
the plaintiff. Ferguson v. City of Chicago, 795 N.E.2d 984, 986 (2003).
The second and fifth elements are obviously met: the jury in the criminal
case found in Jones' favor and, as a result of his arrest and
prosecution, Jones suffered injury. The remaining elements of the claim
will be addressed in turn.
1. Commencement of Criminal Proceeding
The first element necessary to establish a cause of action for
malicious prosecution is the commencement of a criminal proceeding by the
defendant. In this case, there was a criminal proceeding initiated, but
an issue exists as to whether it was commenced by Walter, who was not the
prosecutor, but the investigator.
Liability for malicious criminal prosecution is not limited to
prosecutors and police officers, but extends to all persons who played a
significant role in causing the prosecution of the plaintiff, provided
all the elements of the tort are present. Rodgers v. Peoples Gas. Light
& Coke Co., 733 N.E.2d 835, 842 (2000). Typically, a cause of action
lies when the defendant made a false statement to or the willful
concealment of facts from a prosecuting official which results in the
recommendation of the issuance of a warrant. It may also exist where a
defendant urges or insists that another institute a criminal proceeding.
See, 54 C.J.S. Malicious Prosecution § 18 (2003).
The case before the Court is not the traditional "complaining witness"
scenario where a citizen knowingly gives false information to a police
officer, who then swears out a complaint. See, e.g., Rodgers,
733 N.E.2d 835. The problem with Plaintiffs' theory for this claim is
that there is no allegation, much less evidence, that Walter ever misled
or otherwise deceived the State's Attorney into commencing the criminal
prosecution of Jones. Although Walter arguably withheld potentially
exculpatory evidence from the grand jury, there is nothing to suggest
that he concealed any such information from the State's Attorney.
Moreover, it was the members of a County Board who asked the State's
Attorney's office to open an investigation into Mutual Medical's
dealings, and the State's Attorney, in turn, who assigned Walter to
conduct the investigation. It was also the State's Attorney, with
undisputed full disclosure of the information developed by Walter, who
decided to present the case to the grand jury, request the indictment,
and present the prosecution's case at trial
The Plaintiffs' do not cite, nor is the Court aware of any case in
which a malicious prosecution claim against the investigating officer has
survived summary judgment when the record reflects that the investigator
disclosed all the fruits of his investigation to the prosecutor. Although
the Court believes that Walter, as the sole grand jury witness, obviously
played a significant role in the prosecution of Jones up through the grand
jury proceedings, the Court finds that Illinois law would not expose an
investigator to liability on a malicious prosecution claim when there is
no assertion or proof that he in any way misled, deceived, or otherwise
concealed facts from a prosecutor who later instituted criminal
proceedings and pursued those criminal charges at trial. It is important
to remember that a malicious prosecution suit against a police officer is
an anomaly in itself, since the principal player in carrying out a
prosecution is not the police officer but the prosecutor. Albright v.
Oliver, 510 U.S. 266, 279 n.5 (1994). The fact that the prosecutor enjoys
absolute immunity from suit should not, by itself, expose a police
officer to greater liability in his place. There is little wonder why
suits for malicious prosecution in Illinois are not favored. Joiner v.
Benton Community Bank, 411 N.E.2d 229 (1980); Schwartz v. Schwartz,
8 N.E.2d 668 (1937); Shedd v. Patterson, 134 N.E. 705 (1922).
2. Probable Cause
The next element necessary to establish a malicious prosecution claim
is that the criminal prosecution must have been initiated without
probable cause. A dispute concerning some facts relevant to the
determination of probable cause does not preclude a finding of probable
cause, so long as the finding survives the adoption of the Plaintiffs'
version of the disputed material facts. Cervantes v. Jones, 188 F.3d 805,
811(7th Cir. 1999).
Probable cause has been defined in a malicious prosecution case
involving criminal proceedings as "a state of facts that would lead a
person of ordinary caution and prudence to believe, or to entertain an
honest and strong suspicion, that the person arrested committed the
offense charged." Rodgers 733 N.E.2d at 842; see also, Knox County v.
Midland Coal Co., 640 N.E.2d 4 (1994); Burghardt v. Remivac, 565 N.E.2d 1049
(1991). It is the state of mind of the one commencing the prosecution,
and not the actual facts of the case or the guilt or innocence of the
accused, which is at issue. Id.
"Prima facie probable cause" is established by return of indictment by
grand jury, but it is not conclusive evidence of probable cause and it
may be rebutted by other evidence such as proof that indictment was
obtained by false or fraudulent testimony before grand jury or other
improper or fraudulent means. Freides v. Sani-Mode Mfg. Co., 211 N.E.2d 286
The Court finds that the material evidence in the record, which is not
in dispute, supports a finding of probable cause. Although he purports to
do so, Jones has completely failed to rebut or otherwise negate probable
cause in this case.
First, the inherent conflict of interest frames the entire factual
analysis. Jones' dual role as administrator and broker provided him with
both the opportunity and the motive to generate personal income at the
expense of his clients. In fact, it was this relationship, which was not
fully disclosed in a timely manner, that prompted the Peoria County Board
to request an investigation in the first place.
Additionally, it is undisputed that in each of the three alleged
incidents of fraud that Walter presented to the grand jury, as detailed
above, the claims were not paid by Mutual Medical within the policy years
that the services were billed and, as a result, PMP, Peoria County, and
Pike County were not reimbursed by Safeco. to the extent they would have
been if the medical charges had been paid in the premium year in which
they were incurred. As a result, these three clients of Mutual Medical
arguably lost a collective total $104,829.
With regard to the Wilson case, Jones claims that the Wilson's hospital
bill for the services performed in the days leading up to July 12, 1998,
was not received until February of 1999. Indeed, it was Jones' defense at
trial that he did not receive the bill until February of 1999. This
defense was maintained (successfully as it turned out), even though the
hospital's internal billing records indicate that a bill was sent to
Mutual Medical by certified mail and that a Mutual Medical employee
signed for it on July 16, 1998. Walter and the State's Attorney were
aware at the time of the grand jury proceedings that it was the position
of Jones and Mutual Medical that the hospital bill had not been received
until 1999, but they were not required to actually accept this
explanation. And, if he doubted the truth of this explanation, Walter was
under no legal obligation to disclose this defense or any other
exculpatory evidence to the grand jury. United States v. Williams,
504 U.S. 36 (1992) (Finding that district court may not dismiss otherwise
valid indictment on ground that government failed to disclose to grand
jury "substantial exculpatory evidence" in its possession). This applies
in the civil context as well. See, e.g., Camiolo v. State Farm Fire and
Causualty. Co., 334 F.3d 345, 362-63 (3rd Cir. 2003); see, also, Carson
v. Lewis, 35 F. Supp.2d 250, 260 (E.D.N.Y. 1999). In any event, this
argument does nothing to negate probable cause in this case, particularly
in light of strong evidence in the record that the second interim bill
was actually received at Mutual Medical's offices.
Regarding the Wolfe case, Jones argues that the prosecution lacked
probable cause because the failure to make timely payments was not an act
of fraud, but was attributable to the period of time it took to challenge
certain bills as excessive in one case and receive an itemized bill in
the other. Again, simply because an explanation exists, does not mean
that it has to be accepted. The Plaintiffs have made no meaningful
attempt to explain why no notice was given to PMP that its employee's
medical bills were not being paid in a timely manner or why another
$40,000 would be necessary to cover an additional set of deductibles for
the Wolfe twins. Nor have the Plaintiffs addressed the fact that Mutual
Medical, contrary both to their agreement with Safeco. and standard
operating procedure, wrote a check for Mutual Medical's account to cover
$154,000 in medical bills for the twins, but never submitted the claim
to Safeco. for reimbursement.
In the Pike County case, Mutual Medical knew in late November of 1999
that Pike County's policy year would end on January 31st, but was
seemingly indifferent to that important date when it returned Janet
Boren's hospital bill for itemization of medical services without a
request that it be forwarded back as soon as possible.
Finally, prima facie probable cause is not rebutted by the claim that
Jones had no reason to engage in criminal activity because he could have
legally made more money by simply raising the premiums he charged to his
clients. The occasion to collect more profit is substantially irrelevant
as to whether probable cause existed. This response to the criminal
charges may have created reasonable doubt in the minds of the jurors, but
it has little effect on the determination of whether probable cause
supported the arrest.
Malice is defined as the initiation of a prosecution for any reason
other than to bring a party to justice. Mack v. First Security Bank,
511 N.E.2d 714 (1987). Malice, as an element of malicious prosecution, is
proved by showing that the prosecutor was actuated by improper motives.
Id. Although the Court does not believe that the Plaintiffs have produced
any evidence of malice, this issue, if in dispute, would ordinarily be
one of fact left to the determination of the jury and is, therefore, not
capable of resolution on a Motion for Summary Judgment.
B. Breach of Contract Counter-Claim
Count I of Peoria County's Amended Counter-Claim asserts a cause of
action for breach of contract. Neither side has moved for summary
judgment on this issue. After weighing the relevant factors of judicial
economy, convenience, fairness, and comity, the Court declines to
exercise supplemental jurisdiction over Defendant's state law claim.
Accordingly, the Court will dismiss the Amended Counter-Claim without
prejudice to it being re-filed in state court.
For the foregoing reasons, the Defendant's Motion for Summary Judgment
[#86] is GRANTED. Because the Court declines to retain jurisdiction over
the state law counter-claim, it is DISMISSED without prejudice so that it
may be re-filed in state court. This case is now terminated.