United States District Court, N.D. Illinois, Eastern Division
October 5, 2004.
DR. TIMOTHY T. BRADY and DR. MARIANNE D. BRADY, Plaintiffs,
ALLSTATE LIFE INSURANCE COMPANY f/k/a NORTHBROOK LIFE INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: JAMES ZAGEL, District Judge
MEMORANDUM OPINION AND ORDER
In their five-count Complaint, Plaintiffs Dr. Timothy T. Brady
and Dr. Marianne D. Brady have alleged that Defendant Allstate
Life Insurance ("Allstate") breached two variable annuity
contracts (Counts I & II), breached its duty of good faith and
fair dealing (Count III), committed the tort of conversion (Count
IV), and breached its fiduciary duty (Count V).
All five counts involve two variable annuity contracts that
Plaintiffs entered into with Allstate, then known as Northbrook
Life Insurance Company, on July 26, 1995 and March 4, 1997,
amounting to a total investment of $363,045. According to
Plaintiffs, their primary motivation for choosing this type of
annuity was the flexibility it gave them to move money between
various investment alternatives without restriction or delay.
From July 1995 to December 2002, Allstate effectuated all trades
requested by Plaintiffs in a prompt and timely manner, which,
according to Plaintiffs, allowed them to pursue an aggressive and
successful investment strategy. In early December, however,
Allstate allegedly changed its policies and refused Plaintiffs' instructions to transfer monies between the
available investment alternatives, explaining to Plaintiffs that
it had instituted a cap of $50,000 on the amount of funds that
could be transferred in a single day. In addition to the cap,
Plaintiffs allege that Allstate instituted two more sets of
transfer restrictions. According to Plaintiffs, all of the
restrictions imposed by Allstate violate the language of the
variable annuity contracts entered into by the parties.
Because the Plaintiffs were allegedly unable to effectuate
their investment strategy due to the imposition of these transfer
restrictions, they attempted to transfer a majority of their
annuity monies to an annuity product outside of Allstate's
control. Plaintiffs claim that Allstate failed to comply with
this request for over a month, causing an additional decrease in
the value of their account.
Allstate now moves, pursuant to Federal Rule of Civil Procedure
12(b)(6), to dismiss Counts III, IV, and V of the Complaint. A
motion to dismiss under Rule 12(b)(6) is proper where it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his claim, which would entitle him to relief. Conley
v. Gibson, 355 U.S. 41, 45-46 (1957). In reviewing a motion to
dismiss, the court must construe all allegations in the complaint
in the light most favorable to the plaintiff and accept all
well-pled facts and allegations as true. Bontkowski v. First
Nat'l Bank, 998 F.2d 459, 461 (7th Cir. 1993).
A. Count III: Breach of Covenant of Good Faith and Fair
Allstate argues that Plaintiffs' claim for breach of the
covenant of good faith and fair dealing should be dismissed
because it is not an independently recognized cause of action. It
is well accepted that "under Illinois law, the covenant of good
faith and fair dealing has never been an independent source of duties for the parties to a contract."
Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th
Cir. 1992). While Plaintiffs acknowledge this general rule, they
argue that an exception exists for cases where the defendant has
broad discretion in performance of its duties. See Northern
Trust Co. v. VIII S. Mich. Assoc., 657 N.E.2d 1095, 1104 (Ill.
App. Ct. 1995).
Assuming that such an exception does exist, it is certainly not
applicable to the allegations presented in Plaintiffs' Complaint.
In cases where the Illinois courts have allowed allegations for
breach of the covenant of good faith and fair dealing, the
breaching party was vested with substantive decision making
powers. Northern Trust Co., 657 N.E.2d at 1104 (the defendant
maintained the exclusive right, under the parties' contract, to
approve leases, necessary for the financial support of the
project.); Oil Express Nat'l v. Burgstone, 958 F.Supp. 366
(N.D. Ill. 1997) (under the parties franchise agreement,
defendant was responsible for providing advice on maintenance
programs, maintaining and updating the operations manual, and for
negotiating, entering into, and maintaining national purchasing
agreements for the benefit of the franchisees.)
Here, Allstate is not alleged to have had the power to make any
substantive investment decisions on behalf of Plaintiffs.
Allstate merely had the obligation to move funds between accounts
in accordance with Plaintiffs' wishes. The ability to choose the
method by which the funds were transferred does not equate to the
type of substantive decision making power necessary to trigger
this exception. Accordingly, I find that Plaintiffs' claims for
breach of the covenant of good faith and fair dealing should be
dismissed. B. Count IV: Conversion
Allstate argues that Plaintiffs' conversion claim must fail
because it involves a mere debt or obligation to pay money and is
not actionable under Illinois law. This is principally because
Illinois law severely limits the circumstances under which a
plaintiff can maintain an action for conversion of money. 3Com
Corp. v. Elec. Recovery Specialists, Inc., 104 F. Supp. 2d 932,
939 (N.D. Ill. 2000). Generally speaking, a claim for conversion
will not lie for a mere debt or obligation to pay money. Id; See
Also Mijatovich v. Columbia Sav. & Loan Ass'n, 522 N.E.2d 728,
731 (Ill.App. Ct. 1988); In re Thebus, 483 N.E.2d 1258, 1260
Here the Plaintiffs voluntarily deposited their funds into a
variable annuity account with Allstate. This investment of funds,
much like a deposit with a bank, created a debtor/creditor
relationship between Plaintiffs and Allstate. Mijatovich,
522 N.E.2d at 731; Roderick Dev. Inv. Co., v. Cmty. Bank of
Edgewater, 668 N.E.2d 1129, 1135 (Ill.App. Ct. 1996) (a
debtor/creditor relationship exists, for purposes of a conversion
claim, where a "a party (creditor) transfers his property
voluntarily to another (debtor)."); See Also Bill Marek's the
Competitive Edge, Inc. v. Mickelson Group, Inc., 806 N.E.2d 280,
287 (Ill.App. Ct. 2004). Since Allstate had only an obligation
to refund the money deposited in Plaintiffs' variable annuity
account, a claim for conversion cannot stand in this case.
Accordingly, Plaintiffs' conversion claim is dismissed.
C. Count V: Breach of Fiduciary Duty
Allstate argues that Plaintiffs have failed to state a claim
for breach of fiduciary duty under either the Investment Company
Act of 1940 ("ICA") or under Illinois common law. Section 36(a)
of the ICA creates a cause of action for breach of fiduciary duty
involving personal misconduct. 18 U.S.C. 80a-35(a). In In re
Nuveen Fund Litig., No. 94 C 360, 1996 U.S. Dist. LEXIS 8071 at *35 (N.D. Ill. June 11, 1996), the court
interpreted personal misconduct to include misconduct of an
organization or governing body that pertained to gross neglect of
responsibilities and actions that involved self-dealing. Id. at
*36-37. In reaching this determination, the court cited the House
Committee's report, which stated that "the types of misconduct
covered by [§ 36(a)] . . . extend to personal misconduct
evidenced by misfeasance or nonfeasance . . . as well as
self-dealing and other examples of unjust enrichment." Id. at
37 (quoting H. Rep. 96-1341, 96th Cong., 2d Sess., reprinted
in 1980 U.S.C.C.A.N. 4800, 4808 (footnote omitted)).
The alleged imposition of transfer restrictions and failure to
effectuate an exchange request are not activities that fall
within the meaning of personal misconduct as interpreted by
either the Nuveen court or the Congressional Committee
responsible for amending § 36(a). These actions do not constitute
the type of self-dealing and grossly negligent behavior
envisioned by § 36(a). Thus, I find that Plaintiffs have not
alleged a claim for breach of fiduciary duty under the ICA.
Plaintiffs have, however, sufficiently pled a common law claim
for breach of fiduciary duty. In Illinois, brokers and other
sellers of securities owe common law fiduciary duties to their
customers. T-Bill Option Club v. Brown & Co. Sec. Corp., 1994
U.S. App. LEXIS 11976 (7th Cir., 1994) (citing Martin v. Heinold
Commodities, 510 N.E.2d 840, 844 (Ill. 1987). But, those
fiduciary duties are "limited to actions occurring within the
scope of his agency." T-Bill Option Club, 1994 U.S. App. LEXIS
11976 at *12 (quoting Martin, 510 N.E.2d 840 at 845 (Ill.
1987). The scope of the duty owed by the provider of a
nondiscretionary account, such as Allstate, is an exceedingly
narrow, "consisting at most of a duty to properly carry out
transactions ordered by the customer." T-Bill Option Club, 1994 U.S. App. LEXIS 11976
at *12 (quoting Index Futures Group, Inc. v. Ross,
557 N.E.2d 344, 348 (Ill.App. Ct. 1990)). Here, Allstate was responsible
for transferring funds between available investment alternatives
and had a duty to do so in accordance with the Plaintiffs'
orders. Since the Plaintiffs have alleged that Allstate failed to
carry out these duties, I find that Plaintiffs have sufficiently
alleged a claim for breach of fiduciary duty under Illinois
Allstate's Motion to Dismiss is GRANTED as to Plaintiffs'
claims for breach of covenant of good faith and fair dealing,
conversion, and breach of fiduciary duty under the ICA and is
DENIED as to Plaintiffs' claim for breach of fiduciary duty under
Illinois common law.
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