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Crichton v. Golden Rule Insurance Co.

August 11, 2006


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


This matter is before the Court on the motion to dismiss brought by Defendant Golden Rule Insurance Company ("Golden Rule") (Doc. 20). For the following reasons, the motion is GRANTED. Count I of the operative complaint in this case (Doc. 7) is DISMISSED with prejudice. Count II and Count III are DISMISSED without prejudice. Plaintiff John H. Crichton, Jr., is given leave to file an amended complaint in conformity with this Order not later than thirty (30) days from the date of entry of this Order.


Crichton alleges that in 1995 he joined the Federation of American Consumers and Travelers ("FACT"), a non-profit consumer organization that provides to its members, among other services, access to health insurance products underwritten by Golden Rule. See Doc. 7 ¶ 3, ¶ 10. As a FACT member, Crichton purchased a certificate of insurance under a master association group health insurance policy issued to FACT by Golden Rule. See id.¶ 10. Crichton maintained health insurance under the policy until 2004. See id. Crichton alleges that Golden Rule induced him to purchase the insurance by offering it at an artificially low initial premium, then substantially increasing the premium when the policy was renewed. See id.¶ 5, ¶¶ 35-36. Crichton alleges further that the insurer substantially increased his premiums through a deliberate policy of grouping certificate holders in "blocks," then "closing" the blocks, that is, discontinuing the marketing to and enrollment of otherwise eligible individuals in an existing pool of association group health insurance. See id.¶ 5, ¶¶ 29-32. Golden Rule's practice of closing blocks of insurance has the effect, Crichton alleges, of forcing premiums up for existing insureds in the insurance pool and forcing out of the pool insureds who cannot afford to pay the rising premiums. See id.¶ 31.

Crichton's complaint, which is brought on behalf of a proposed nationwide class of persons who hold or have held certificates of insurance under master group insurance policies issued to FACT by Golden Rule since 1990, asserts three counts in connection with Golden Rule's marketing and sales practices. Count I alleges violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 -- 505/12 ("ICFA").*fn1 Count II asserts a claim for common-law fraud. Finally, Count III alleges violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO"). Jurisdiction is asserted on the basis of 28 U.S.C. § 1331 and 28 U.S.C. § 1332, as amended by the Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.). Golden Rule has moved for dismissal of Crichton's claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Having reviewed the submissions of the parties and conducted a hearing on the motion, the Court now is prepared to rule.


A. Legal Standard

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure challenges the legal sufficiency of a plaintiff's complaint to state a claim upon which relief may be granted. See FED. R. CIV. P. 12(b)(6); Antonelli v. Sheahan, 81 F.3d 1422, 1427 (7th Cir. 1996). "The essence of a defendant's Rule 12(b)(6) motion is not that the plaintiff has pleaded insufficient facts, it is that even assuming all of his facts are accurate, he has no legal claim." Payton v. Rush-Presbyterian-St. Luke's Med. Ctr., 184 F.3d 623, 627 (7th Cir. 1999) (citing Johnson v. Revenue Mgmt. Corp., 169 F.3d 1057, 1059 (7th Cir. 1999)). In evaluating a Rule 12(b)(6) motion, a court must take a plaintiff's factual allegations as true and draw all reasonable inferences in the plaintiff's favor. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n.1 (2002); Strasburger v. Board of Educ., Hardin County Cmty. Unit Sch. Dist. No. 1, 143 F.3d 351, 359 (7th Cir. 1998). A complaint should be dismissed for failure to state a claim for relief only if "no relief could be granted 'under any set of facts that could be proved consistent with the allegations.'" Nance v. Vieregge, 147 F.3d 589, 590 (7th Cir. 1998) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). See also Scott v. City of Chicago, 195 F.3d 950, 951 (7th Cir. 1999).

B. Golden Rule's Motion to Dismiss

1. Count I (the ICFA)

Golden Rule seeks dismissal of Count I of Crichton's complaint on the grounds that Crichton, a Florida resident, lacks standing to sue under the ICFA, and on the grounds that Crichton's allegations of consumer fraud are not pleaded with particularity. The Court agrees with Golden Rule that Crichton lacks standing under the ICFA. In Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E.2d 801 (Ill. 2005), the court decertified a nationwide class action against an Illinois-based automobile insurer under the ICFA, holding that the members of the class who were not Illinois residents lacked standing to sue under the statute. See 849-55. The Avery court held that an out-of-state resident may have a private right of action under the ICFA, but the statute does not apply to "fraudulent transactions which take place outside Illinois." Id. at 853. Conversely, the court held, "a plaintiff may pursue a private cause of action under the [ICFA] if the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois." Id. at 853-54. In determining whether the claims under the ICFA brought by the out-of-state class representatives in Avery had the requisite nexus with Illinois, the court examined the place of residence of those plaintiffs, where the misrepresentations at issue in the case were made, where the damage to the plaintiffs occurred, and whether the plaintiffs communicated with the insurer or its agents in Illinois. See 854-55. Importantly, the court rejected the notion that an allegation that a defendant was headquartered in Illinois or that its deceptive practices flowed from Illinois was sufficient to assert a claim. The court held, "The appellate court's conclusion that a scheme to defraud was 'disseminated' from State Farm's headquarters [in Illinois] is insufficient" to establish standing under the ICFA. Id. at 855. "[W]here the only connection with Illinois is the headquarters of the defendant or the fact that a scheme 'emanated' from Illinois, the [ICFA] 'does not apply to the claims of the non-Illinois plaintiffs[.]'" Id. (quoting Rohlfing v. Manor Care, Inc., 172 F.R.D. 330, 340 & n.10 (N.D. Ill. 1997)).

In this case, Crichton's complaint alleges that Golden Rule maintains its principal place of business in Indiana but has a "'home' office" in Illinois. Doc. 7 ¶ 11. Also, to the extent it is relevant, Crichton alleges that FACT is headquartered in Illinois. See id.¶ 3. It can also be inferred from the allegations of the complaint that Golden Rule does a certain amount of customer relations work at its Illinois office. See id. ¶ 55, ¶ 57. Importantly, the complaint does not allege that Crichton bought insurance in Illinois, paid premiums in Illinois, or engaged in any communications with Golden Rule in Illinois, and it is obvious that the gist of his allegations is simply that the allegedly fraudulent scheme at issue here emanated from Golden Rule's office in Illinois, which, as discussed, is not sufficient to establish standing under the ICFA. See In re Sears, Roebuck & Co., No. MDL-1703, 05 C 4742, 05 C 2623, 2006 WL 1443737, at *2 (N.D. Ill. May 17, 2006) (holding that out-of-state plaintiffs lacked standing under the ICFA where no such plaintiff "alleges that he or she bought tools from any of Sears's stores in Illinois" or that "he or she saw, heard, or otherwise was exposed to any misrepresentation in Illinois" and "no plaintiff alleges any contact with a Sears agent in Illinois."); Shaw v. Hyatt Int'l Corp., No. 05 C 5022, 2005 WL 3088438, at *2 (N.D. Ill. Nov. 15, 2005) (in a putative class action arising from an Illinois-based hotel chain's allegedly fraudulent currency exchange inflation scheme, holding that the named plaintiff lacked standing under the ICFA: "Plaintiff, a London resident (and former New York resident), reserved a hotel room in Russia through Hyatt's website, and was charged more than originally quoted on the website due to the hotel's inflated currency exchange rates. These allegations do not establish the requisite nexus with Illinois, and thus, there is no basis for the application of the ICFA to the transaction at issue.").

To the extent Crichton argues that he has standing to sue Golden Rule under Florida consumer protection laws, Crichton's complaint asserts a claim under the ICFA, not Florida law. The matter of whether members of the class Crichton seeks to represent have standing under Florida law is irrelevant to the issue of Crichton's standing under either Illinois law or Florida law, see Payton v. County of Kane, 308 F.3d 673, 680-81 (7th Cir. 2002); Walters v. Edgar, 163 F.3d 430, 432-33 (7th Cir. 1998); Hope, Inc. v. DuPage County, Ill., 738 F.2d 797, 804-05 (7th Cir. 1984), and, in any event, Florida's consumer fraud statute does not apply to Golden Rule, as an entity regulated by that state's insurance authorities. See Fla. Stat. ...

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