The opinion of the court was delivered by: Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
American Insurance Group, Inc. ("AIG") and its affiliates and subsidiaries, AIG Casualty Company f/k/a Birmingham Fire Insurance Company of Pennsylvania, AIU Insurance Company, American Home Assurance Company, American International Pacific Insurance Company f/k/a American Fidelity Company, American International South Insurance Company f/k/a American Global Insurance Company, American International Specialty Lines Insurance Company f/k/a Alaska Insurance Company, Commerce and Industry Insurance Company, Inc., Granite State Insurance Company, Illinois National Insurance Company, Insurance Company of the State of Pennsylvania, National Union Fire Insurance Company of Pittsburgh, New Hampshire Indemnity Company, and New Hampshire Insurance Company (collectively the "AIG Companies" and with AIG, "Plaintiffs/AIG Defendants/Class Defendants") have filed a ten-count first amended complaint against defendants/counter-plaintiffs: the National Worker's Compensation Reinsurance Pool ("NWCRP" or the "Pool"); the Pool's administrator and attorney-in-fact, the National Council on Compensation Insurance, Inc. ("NCCI");*fn1 and nineteen insurance companies that have served on the Board of Governors of the Pool (the "Pool Board Members"), including Liberty Mutual Group ("Liberty Mutual"), Travelers Insurance Group ("Travelers"), The Hartford Financial Services Group (together with its subsidiaries, "The Hartford"), and ACE INA Holdings, Inc. ("ACE", together with Liberty Mutual, Travelers, and
The Hartford, collectively the "RICO Defendants"), and Sentry, an insurance company that participates in the Pool and allegedly underreported premium data (together with the RICO Defendants, collectively the "Underreporting Participating Companies").
The amended complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(c) and (d) ("RICO"), against the RICO Defendants (Counts One and Two), civil conspiracy against the RICO Defendants (Count Three), breach of fiduciary duty against the Pool Board Members (Count Four), two counts of fraud against the Underreporting Participating Companies (Counts Five and Six), breach of contract against the Underreporting Participating Companies (Count Seven), unjust enrichment against the Underreporting Participating Companies (Count Eight), equitable accounting against the Underreporting Participating Companies, the Pool, and NCCI (Count Nine), and an action on an open, mutual, and current account against the Underreporting Participating Companies, the Pool, and NCCI (Count Ten).
The Underreporting Participating Companies have moved to dismiss Counts One through Four and Count Eight for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). The Pool Board Members who have not allegedly underreported their premium data, including Advantage Workers Compensation Insurance Company, Alaska National Insurance Company, Amtrust Financial Service, Inc., Berkley Risk Administrators Company LLC, Chubb & Son, a Division of Federal Insurance Company, Cincinnati Insurance Company, Companion Property & Casualty insurance Company, GUARD Insurance Group, Inc., General Casualty Company of Wisconsin, Harleysville Mutual Insurance Company, MEMIC Indemnity Company, Safeco Insurance Company of America, Trust Insurance Exchange, and Utica Mutual Insurance Company (collectively the "Non-Underreporting Pool Board Members") have moved to dismiss Count Four pursuant to Rule 12(b)(6). Finally, NWCRP and NCCI have each independently moved to dismiss Counts Nine and Ten on various grounds.
Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, Liberty Insurance Company, and The First Liberty Insurance Corporation (collectively the "Liberty Plaintiffs") together with Employers Insurance Company of Wausau, Wausau Business Insurance Company, Wausau General Insurance Company, and Wausau Underwriters Insurance Company (collectively the "Wausau Plaintiffs," and together with the Liberty Plaintiffs the "Liberty Parties"), have brought a ten count counterclaim alleging: violations of RICO, 18 U.S.C. §§ 1962(c) and (d), against AIG (Claims One and Two ); common law fraud against all AIG Defendants (Claim Three); violation of the Massachusetts Regulation of Business Practice and Consumer Protection Act against all AIG Defendants (Claim Four); an action for an accounting against all AIG Defendants (Claim Five); an action on an open, mutual, and current account against the AIG Companies (Claim Six); breach of contract against the AIG Companies (Claim Seven); promissory estoppel against the AIG Companies (Claim Eight); and unjust enrichment against AIG (Claim Nine). The AIG Defendants have moved to dismiss Claims One through Four and Eight through Nine.
Finally, Safeco Insurance Company of America ("Safeco") and Ohio Casualty Insurance Company ("Ohio Casualty") (collectively "Class Plaintiffs"), individually, and on behalf of a putative class consisting of members of the NWCRP (excluding Class Defendants), have brought an eight count amended class action complaint against Class Defendants. The Class Action Complaint alleges violations of RICO against AIG (Counts One and Two); common law fraud against Class Defendants (Count Three); an action for an accounting against Class Defendants (Count Four); an action on an open, mutual, and current account against the AIG Companies (Count Five); breach of contract against the AIG Companies (Count Six); promissory estoppel against the AIG Companies (Count Seven); and unjust enrichment against AIG (Count Eight). Class Defendants have moved to dismiss Counts One through Three and Seven through Eight of the Class Action Complaint.
For the reasons stated below, the motions are granted in part and denied in part.
This case has a long and tortured procedural history. The court has previously issued three memorandum opinions and orders that provide useful background information.*fn2
The original complaint in this matter was filed by NCCI acting solely as attorney-in-fact for the participating companies of the NWCRP ("Participating Companies") against plaintiffs. All of the counts of that complaint were based on alleged intentional fraudulent conduct by plaintiffs in underreporting workers compensation premiums to the Pool. In their answer to the original complaint, plaintiffs raised numerous affirmative defenses and filed counterclaims for an equitable accounting and an action on an open, mutual, and current account. Plaintiffs also filed a third-party complaint against 24 named companies and unnamed companies. NCCI subsequently moved to strike the affirmative defenses and to dismiss the counterclaims. The third-party defendants filed a motion to dismiss the third-party complaint.
In a February 23, 2009, ruling on these motions (the "February 23 Order"), the court granted in part and denied in part NCCI's motion to strike plaintiffs' affirmative defenses,*fn3 and denied the motion to dismiss the counterclaims. The February 23 Order also granted the third-party defendants' motion to dismiss plaintiffs' claims for violations of RICO, RICO conspiracy, civil conspiracy, and contribution. The order denied the motion to dismiss plaintiffs' claims for breach of fiduciary duty, two counts of fraud, and unjust enrichment.
Before the February 23 Order was issued, plaintiffs filed a motion to dismiss NCCI's underlying complaint for lack of subject matter jurisdiction. On August 20, 2009, this court held that NCCI lacked standing to sue plaintiffs and dismissed NCCI's original complaint. On October 16, 2009, plaintiffs filed a first amended complaint, now as lead plaintiffs, restating their counterclaims and third-party claims. Defendants NCCI, NWCRP, and the individually named Participating Companies have moved to dismiss the amended complaint. A sub-set of the defendant Participating Companies -- the Liberty Parties -- have filed numerous counterclaims, some of which plaintiffs have moved to dismiss.
In addition, on April 1, 2009, Safeco and Ohio Casualty filed a putative class action complaint on behalf of the Participating Companies not named as Class Defendants. On April 14, 2009, that case was brought in as related to the No. 07-C-2898 case and reassigned to this court. Class Defendants have since moved to dismiss various counts of the class action complaint.
Facts Common to All Actions
The current pleadings contain no new allegations that alter the basic facts of how the market for workers compensation functions, as recited in the court's previous opinions. All states require employers to provide workers compensation insurance for their employees. Most employers find insurers willing to provide them with coverage, and participate in what is known as the "voluntary market" for workers compensation insurance. Insurers that provide coverage to the voluntary market are also required to provide coverage to the "residual market" -- the market for employers that cannot obtain coverage on the voluntary market -- through a state's assigned risk plan. Under that plan, the amount of insurance an insurer is required to provide to the residual market is directly proportional to the amount of premiums it collects for the policies it writes for the voluntary market.
Established in 1970, the Pool provides insurance companies with a means of complying with their residual market requirements. The Pool is organized and governed by Articles of Agreement ("the Articles"), a contract to which all Participating Companies have agreed and are signatories. The Articles provide that NCCI, a statistical, research, and ratemaking not-for-profit corporation, is the administrator of the Pool and is responsible for a variety of functions related to fulfilling the purpose of the Pool. As administrator, NCCI "executes the quota share reinsurance contracts on behalf of the participating companies... performs all accounting, actuarial, and administrative functions for those agreements including data collection and billing." It also administers bank accounts for the Pool and the Participating Companies, and functions as the attorney-in-fact for each Participating Company.*fn4
NCCI's primary role is to calculate the "reinsurance participation rate" for each Participating Company using premium data from the annual certified financial reports filed by each company. These rates reflect each company's proportional share of the residual market on a a state-by-state and policy-year-by-policy-year basis. A company's annual reinsurance participation rate is the ratio of the amount of voluntary market workers compensation premiums billed by that company (numerator) to the total amount of workers compensation premiums billed in the voluntary market by all Participating Companies (denominator). Consequently, any company that underreports its premiums to NCCI decreases its reinsurance participation rate and the overall total used to calculate all the rates.
In 2005, the New York Attorney General and the New York Department of Insurance (the "New York Authorities") launched an investigation into the AIG Defendants' workers compensation premium reporting practices. In January 2006, AIG entered into a settlement with the New York Authorities in which AIG established a fund of over $300 million (the "Fund") to compensate third parties, including the Pool, allegedly injured as a consequence of the AIG Defendants' alleged underreporting.
The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to rule on its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). When considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court accepts all well-pleaded allegations of the complaint as true and draws all reasonable inferences in the plaintiff's favor. McMillan v. Collection Prof'ls, Inc., 455 F.3d 754, 758 (7th Cir. 2006). Nevertheless, the complaint must plead sufficient facts to suggest plausibly that the plaintiff is entitled to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).
Allegations of fraud are subject to a heightened pleading standard. Fed. R. Civ. P. 9(b). Fraud must be pled with particularity, which means the complaint must allege the "who, what, when, where and how" of the fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). At the motion to dismiss stage, Rule 9(b) requires only that the plaintiff identify the alleged misrepresentations, not actually prove that the statement was false. See Bankers Trust Co. v. Old Republic Ins., Co., 959 F.2d 677, 683 (7th Cir. 1992). This standard also applies to allegations of predicate acts of fraud in the RICO context. See Slaney v. Int'l Amateur Athletic Fed'n, 244 F.3d 580, 597-99 (7th Cir. 2001); Haroco, Inc. v. Am. Nat'l Bank and Trust Co., 747 F.2d 384, 405 (7th Cir. 1984) (finding that the plaintiff adequately specified the transactions, the false representations, and the identities of those involved). The pleadings must be specific enough to put defendants on notice of the conduct alleged.
Motions to Dismiss the Amended Complaint Facts Specific to the Amended Complaint
Plaintiffs have brought the underlying action against: (1) the Pool; (2) NCCI, the Pool's administrator; (3) nineteen insurance companies that have served as Pool Board Members; and (4) Sentry, an insurance company that participates in the Pool and that is alleged to have underreported its workers compensation premiums to the Pool. Plaintiffs' claims against defendants stem from five broad, underlying allegations. First, plaintiffs allege that the Underreporting Participating Companies improperly underreported to NCCI the amount of their voluntary market workers compensation premiums, which resulted in a decrease in their residual market obligations. Second, plaintiffs allege that the Pool Board Members declined to participate in the Fund, blocked any states from making claims against the Fund on the Pool's behalf, and prevented the Pool from making claims against the Fund. Third, plaintiffs contend that the Pool Board Members suppressed any investigation into premium underreporting by any Participating Companies other than plaintiffs. This decision came despite the Pool Board's knowledge of evidence warranting investigation into underreporting by Sentry and the four RICO Defendants. Fourth, plaintiffs allege that the RICO Defendants conspired to direct NCCI to issue false quarterly Pool statements to plaintiffs and other Participating Companies, which they relied upon and paid. Finally, plaintiffs allege that the Pool Board directed NCCI to ignore plaintiffs' amended premium filings with the intent of further disabling the effectiveness of the Fund and rendering plaintiffs unable to address their alleged underreporting.
The theory of plaintiffs' RICO claims is that the four RICO defendants concealed and failed to investigate the underreporting of premiums by other Participating Companies and that each RICO defendant was "aware of its own underreporting and also was aware of the underreporting by the other" RICO Defendants. Specifically, plaintiffs allege that the RICO Defendants: (1) directed NCCI to ignore its standard administrative practices; (2) were aware of evidence warranting investigation of underreporting by the RICO Defendants, but failed to investigate; (3) directed NCCI to issue inaccurate quarterly statements to the Participating Companies; and (4) refused to participate in the Fund.
NCCI's Motion to Dismiss Counts Nine and Ten
In Counts Nine and Ten, plaintiffs assert claims for an accounting and an action on an open, mutual, and current account. NCCI has moved to dismiss these claims on the grounds that:
(1) plaintiffs fail to state a claim for an accounting; (2) plaintiffs cannot state a claim for an accounting where it has an adequate legal remedy through its breach of contract claim; and (3) NCCI is not a proper party to this action. Specifically, NCCI argues that because plaintiffs have failed to allege that NCCI possesses the workers compensation premium data from the Underreporting Companies that is needed to recalculate the correct reinsurance participation rate for each Participating Company, plaintiffs fail to state a claim for an accounting. NCCI also argues that plaintiffs cannot state a claim for an accounting because it has not and cannot allege that if it prevails on its breach of contract claim it will not have an adequate remedy at law. Finally, NCCI argues that Counts Nine and Ten are not ripe for adjudication unless and until new premium information is established.
Plaintiffs argue in response that NCCI's motion fails for several reasons: (1) the court has already upheld plaintiffs' claims for an accounting and an open, mutual, and current account, and NCCI has not presented the court with any clear or convincing reason for the court to re-examine its prior ruling; (2) the amended complaint states a claim for both an equitable accounting and an open, mutual, and current account; (3) NCCI's involvement in a full accounting is necessary because, along with the Pool, it has the unique ability to execute the recalculation of participation ratios and residual market expenses and properly allocate losses among the Participating Companies; (4) an adequate remedy at law does not exist because of the complex calculations involved in correcting the residual market allocations; and (5) plaintiffs' claims against NCCI are ripe because the complaint alleges that plaintiffs suffered a concrete injury as a result of the alleged scheme, and an accounting by NCCI is necessary to ascertain the magnitude, not the existence, of the damages. The court will consider plaintiffs' arguments in turn.
As a preliminary matter, plaintiffs argue that the "law of the case" doctrine bars the motions to dismiss brought by the Non-Underreporting Pool Board Members, NCCI, and the Pool.
In the February 23 Order, because plaintiffs had sufficiently alleged a need for an equitable accounting, the court denied NCCI's motion to dismiss the counterclaim for an accounting and an action on a open, mutual, current account. Specifically, the court found that both plaintiffs and NCCI were entitled to request an accounting if there were errors in the reported premium data and consequent errors in the computations of the Participating Companies' proportional shares of the residual market. In a subsequent Memorandum Opinion and Order issued on August 20, 2009 ("August 20 Order"), the court held that NCCI lacked standing to bring an action against plaintiffs and dismissed NCCI's complaint.
The rule of the law of the case provides that when an issue has been litigated and decided, a court's unreversed decision on a question of law or fact settles that question for all subsequent stages of the suit. Avitia v. Metropolitan Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995). Under this doctrine, a court has the discretion to reconsider a previous ruling in the same litigation if there is a compelling reason that makes clear that the earlier ruling was erroneous. Santamarina v. Sears, Roebuck & Co., 466 F.3d 570, 571-72 (7th Cir. 2006).
While NCCI and the Pool are correct that the court's August 20 Order changed the manner in which the instant litigation is structured and captioned, these changes do not compel the court to revisit the February 23 Order because they did not result in plaintiffs bringing substantially different allegations with respect to the claims underlying Counts Nine and Ten. The crux of plaintiffs' claims continues to be that because the Underreporting Participating Companies gave NCCI and/or the Pool inaccurate reports, and NCCI used this data to calculate incorrect residual market obligations, plaintiffs have a compelling need for access to this information so they can understand the scope and consequences of the premium underrporting and its impact. Although NCCI is no longer the plaintiff in this case, the court concludes that in the event plaintiffs are able to prove their allegations of underreporting, NCCI's participation in an equitable accounting and an action on an open, mutual, current account is proper because of its key role in determining the market participation rate.*fn5
For these reasons, the court finds it is unnecessary to reach the numerous other arguments NCCI has presented in support of its motion to dismiss Counts Nine and Ten. That motion is denied.
NWCRP's Motion to Dismiss Counts Nine and Ten
The Pool correctly argues that because it was not previously a party to the case and did not participate in the original motions to dismiss the original iterations of plaintiffs' claims for an accounting and an action on an open, mutual, and current account, it should not be foreclosed from doing so now. The court agrees that plaintiffs' law of the case argument does not apply to the Pool's current motion because it has not previously had an opportunity to brief its position on these claims.
The Pool asserts four arguments in support of its motion to dismiss: (1) the Pool is not an entity capable of being sued because it is merely a collection of contracts; (2) the Pool has not been properly served with process because it has no agent; (3) plaintiffs' remedy lies with the Participating Companies because the Pool does not control accounting records; and (4) plaintiffs' own unclean hands bar an action for an equitable accounting. None of these arguments have merit.
First, on January 1, 2010, the NWCRP became the National Workers Compensation Reinsurance Association ("NWCRA"), a not-for-profit corporation responsible for the reinsurance pooling mechanism.*fn6 Although the court was not informed by the parties of this change, it has taken judicial notice of this fact. See Henson v. CSC Credit Services, 29 F.3d 280, 284 (7th Cir. 1994) (court may take judicial notice of matters of public record without converting the motion into a motion for summary judgment). Second, the docket for this case shows that the Pool was properly served with summons and a copy of the amended complaint on December 15, 2009. See Docket Entries 554, 555. Therefore, the Pool's first and second arguments are moot.
The Pool's third argument fails because plaintiffs have sufficiently alleged that the Pool, and/or NCCI on behalf of the Pool, is in possession of the premium information originally reported on behalf of the Underreporting Participating Companies. Any factual disputes on this issue must be dealt with at a later stage in the proceedings. Finally, the Pool's fourth argument fails because unclean hands is an affirmative defense, and "affirmative defenses do not justify dismissal under Rule 12(b)(6)." Doe v. GTE Corp., 347 F.3d 655, 657 (7th Cir. 2003).
For these reasons, the Pool's motion to dismiss Counts Nine and Ten is denied.
Non-Underreporting Pool Board Members
The Non-Underreporting Pool Board Members have moved to dismiss Count Four of the amended complaint for breach of fiduciary duty, arguing that plaintiffs have failed to state a claim for relief pursuant to Rule 12(b)(6) because the allegations are conclusory and implausible.
Plaintiffs argue in response that the amended complaint alleges sufficient, plausible facts to demonstrate that the Pool Board Members knew of the alleged underreporting and refused to investigate it. Plaintiffs further argue that under the law of the case doctrine the court should deny the motion because the court rejected these same arguments when defendants moved to dismiss plaintiffs' breach of fiduciary duty claim in its original third-party complaint. The NonUnderreporting Pool Board Members contend that the law of the case doctrine does not apply here because: (1) plaintiffs have materially changed the allegations of this claim upon repleading, Sharp Elecs. Corp. v. Metro. Life Ins. Co., 578 F.3d 505, 510 (7th Cir. 2009); and (2) the Supreme Court's May 2009 decision in Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), which clarifies the scope of pleading standards introduced in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), provides a compelling reason for the court to reconsider its previous ruling.
Upon review of the allegations in both plaintiffs' third-party complaint and the amended complaint, the court agrees that the law of the case doctrine applies here and declines to revisit its earlier ruling. In both versions of the claim, plaintiffs generally allege that the NonUnderreporting Pool Board Members breached their fiduciary duties to plaintiffs by failing to investigate and assert claims for fraudulent conduct of the Underreporting Participating Companies and assisting in the concealment of that conduct. ...