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Community Insurance Services, Ltd. v. United Life Insurance Co.

March 24, 2006

COMMUNITY INSURANCE SERVICES, LTD., PLAINTIFF,
v.
UNITED LIFE INSURANCE COMPANY, FIRST FINANCIAL CORPORATION, JACQUE S. PENTELL, DEFENDANTS.



The opinion of the court was delivered by: Gilbert, District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on defendants First Financial Corporation ("First Financial") and Jacque S. Pentell's ("Pentell") motion to dismiss (Doc. 11). Defendants submitted a memorandum of law in support of their motion (Doc. 12), to which plaintiff Community Insurance Services, Ltd. ("Community") has responded (Doc. 16). Community has also filed a motion to dismiss First Financial and Pentell's counterclaim (Doc. 17). Community submitted a memorandum of law in support of this motion (Doc. 18), to which Defendants have responded (Doc. 22). For the following reasons Defendants' motion to dismiss and Community's motion to dismiss counterclaim are GRANTED.

BACKGROUND

Community filed a nine-count complaint that alleges, among other things, defendants engaged in a conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq. In its complaint, Community alleges that Defendants conspired to defraud it of "proceeds and commissions due under agency agreements for the sale of certain annuity products." (Doc. 1 at 2). As Defendants ask the Court to dismiss the RICO claim in a Rule 12(b)(6) motion, the Court must accept the allegations in the complaint as true. Brown v. Budz, 398 F.3d 904, 908 (7th Cir. 2005).

In 1995, plaintiff's predecessor entered into a Premier General Agency Agreement ("PGA") with United Life Insurance Company ("United Life"), under which United Life granted Community the right to market and offer for sale United Life's insurance and annuity products in exchange for Community's receipt of commissions from these sales. (Id. at 3). The sole shareholders of Community and its predecessor were Solon "Bud" Pentell ("Bud") and Jaque S. Pentell ("Pentell"). Several years after entering into the agency agreement with United Life, Bud, on behalf of Community, developed a plan to sell United Life products in Illinois and Missouri banks. As part of this business plan, Community planned to hire bank employees at local banks to sell United Life products as "dual agents" under the PGA. Prior to the implementation of this plan, Community and United Life orally agreed on a marketing plan, which would keep United Life from entering into separate agreements with Community's potential customers. (Id.). Basically, United Life agreed not to contact banks and other financial institutions that Community had previously contacted without Community's consent. From 1997 to 2000, the parties operated according to this agreement.

In mid-1998, Community entered into an agreement with Community Bank & Trust ("CB&T"). Under this agreement, Community established a branch office at CB&T's Olney (Illinois) facility to sell United Life annuities and other products. CB&T hired Bud's wife, Pentell (defendant here) as a part-time employee to train the "dual agents" in the sale of United Life products. Over the years, Community hired and trained at least 20 CB&T employees as agents under the PGA. Through its agents at CB&T, Community generated gross commissions and bonuses exceeding $1.2 million from 1997 to 2001. The stability of this arrangement started to break down in late 2001 when Bud and Pentell divorced. Under the terms of the divorce decree Pentell assigned her entire interest in Community to Bud. Soon after this, First Financial acquired CB&T, and renamed it First Community Bank ("First Community"). Bud notified United Life of First Financial's acquisition of CB&T and requested that United Life not grant First Financial or its subsidiaries a direct agency agreement without his consent -- pursuant to United Life's prior agreement and consistent with the course of dealing between them during the previous four years. (Id. at 5). United Life's vice president, Ronald Brandt, assured Bud that it would maintain the status quo. (Id.).

On June 17, 2002, First Financial notified Community of its intent to terminate its branch office agreement and to transfer all of its insurance and annuity services to Forest Scherer Insurance, Inc., one of its wholly-owned affiliates ("Forrest Scherer"). First Financial also demanded that Community return "all files and trail commissions on annuity policies" sold by Community at its First Community (previously CB&T) branch offices. (Id.). In August 2002, Community discovered that United Life had entered into a PGA with Forrest Scherer without its consent. In addition, United Life released confidential information concerning Community's annuity customer accounts without Community's consent. Surely more disturbing to Bud from a personal perspective, Pentell, while still a "down line" agent of Community, became a full time employee of First Community and Forest Scherer; she continued to sell United Life products for First Community in much the same way as she had under the prior agreement. (Id. at 6). Perhaps more disturbing from a business perspective, First Community and Forrest Scherer executed change of agency forms given them by United Life allowing them to solicit Community's annuity customers. United Life also transferred Community's "down line" agents under Community's branch agreement with CB&T to Forrest Scherer without Community's consent.

Community discovered in late 2002 that First Financial, through First Community and Forrest Scherer, contacted Community's annuity customers through a direct mailing, soliciting them to change their agency from Community to Forrest Scherer. In this mailing, First Financial misrepresented certain facts to Community's customers. It mistakenly told these customers that Pentell was their current agent, when in fact, Community remained their agent. First Financial also told these individuals their agent would remain the same, which was false because contrary to its representations, their agent -- still Community -- did not work for First Community. First Financial also told them that the change in agency would not affect their annuity contracts. In its mass mailing, First Financial included a change of agency form, which it characterized as an "acknowledgment," informing these individuals that Forrest Scherer was their agent, when in fact it could not become their agent unless they signed the form. (Id. at 7). United Life also refused to transfer Janet Sue Piper ("Piper") -- it is unclear from the complaint and briefs whether the transfer was Community's request or her own-- a "down line" agent of Forrest Scherer to Community without Forrest Scherer's consent, despite the fact that she was transferred to Forrest Scherer without Community's consent. In pursuance of the above, defendants used the U.S. Postal Service to mail information to Community's customers. See 18 U.S.C. § 1341. Defendants also used "wire communications in interstate commerce" to secure Community's customer accounts. See 18 U.S.C. § 1343.

ANALYSIS

A. Dismissal under Rule 12(b)(6)

When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts all allegations as true and draws all reasonable inferences in favor of the plaintiff. Brown, 398 F.3d at 908; Holman v. Indiana, 211 F.3d 399, 402 (7th Cir. 2000). The Court should not grant a motion to dismiss unless it appears beyond doubt that the plaintiff cannot prove his claim under any set of facts consistent with the complaint. Brown, 398 F.3d at 908-09; Holman, 211 F.3d at 405. "[I]f it is possible to hypothesize a set of facts, consistent with the complaint, that would entitle the plaintiff to relief, dismissal under Rule 12(b)(6) is inappropriate." Brown, 398 F.3d at 909 (internal quotations omitted).

Generally, courts will not grant a motion to dismiss merely because the complaint is vague or lacking in detail so long as it pleads "the bare minimum facts necessary to put the defendant on notice of the claim so that he can file an answer." Higgs v. Carver, 286 F.3d 437, 439 (7th Cir. 2002); see Brown, 398 F.3d at 908; Strauss v. City of Chicago, 760 F.2d 765 (7th Cir. 1985). A complaint does not fail to state a claim merely because it does not set forth a complete and convincing picture of the alleged wrongdoing. Bennett v. Schmidt, 153 F.3d 516, 518 (7th Cir. 1998); American Nurses' Ass'n v. Illinois, 783 F.2d 716, 727 (7th Cir. 1986). Nor must it allege all, or any, of the facts logically entailed by the claim. Higgs, 286 F.3d at 439; Bennett, 153 F.3d at 518; American Nurses', 783 F.2d at 727. Nonetheless, the complaint must provide a short and plain statement of the claim sufficient to fairly put the defendant on notice of the claim and its basis. Leatherman v. Tarrant Co. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168 (1993); Brown, 398 F.3d at 908; see also Fed. R. Civ. P. 8(a).

In the context of pleading conspiracies, the general "short and plain" statement rule is not upset. Hoskins v. Poelstra, 320 F.3d 761, 764 (7th Cir. 2003). Put another way, conspiracy pleadings are not subject to the heightened pleading requirements in F.R.Civ.P. 9(a). Id.; Walker v. Thompson, 288 F.3d 1005, 1007 (7th Cir. 2002). All a plaintiff must do is "indicate the parties, general purpose, and approximate date, so that the defendant has notice of what he is charged with." Hoskins, 320 F.3d at 764; Walker, 288 F.3d at 1007. However, in the RICO context, allegations of fraudulent conduct must specify, with particularity, the circumstances of the alleged fraud. Slaney v. The Intern. Amateur Athletic Fed'n, 244 F.3d 580, 597 (7th Cir. 2001); Haroco, Inc. v. Am. Nat. Bank and Trust Co., 747 F.2d 384, 405 (7th Cir. 1984). To meet this standard, a plaintiff must describe the two predicate acts of fraud with ...


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