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McWorthey v. Technology Insurance Co., Inc.

United States District Court, N.D. Illinois, Eastern Division

August 18, 2016

JAMES D. MCWORTHEY Plaintiff,
v.
TECHNOLOGY INSURANCE COMPANY, INC. and IMPERIUM INSURANCE COMPANY, Defendants.

          ORDER

          AMY J. ST. EVE United States District Court Judge

         Plaintiff James McWorthey has moved the Court to dismiss Counts VIII, IX, and X of Intervenor Indiana Compensation Rating Bureau (“ICRB”)’s Second Amended Complaint in Intervention pursuant to Federal Rule of Civil Procedure 9(b). (R.189). For the reasons set forth below, the Court denies the motion as to Count VIII. The Court grants the motion, without prejudice, as to Counts IX and X.

         BACKGROUND[1]

         On July 23, 2015, McWorthey and Omega entered into an agreement pursuant to Missouri Revised Statute § 537.065, whereby-in exchange for $5, 000 and a contemplated assignment of rights-McWorthey released Omega from all obligations owed pursuant to judgment in the Underlying Lawsuit. (R.132-3, the “Missouri ‘065 Agreement”). After McWorthey secured a $35 million judgment against Omega on July 27, 2015 (the “Judgment”), Omega formally assigned all “interests in, rights to, and claims concerning” the Related Litigation to McWorthey. (R.132-4, the “Missouri ‘065 Assignment”).

         In Count VIII of its Second Amended Complaint in Intervention, ICRB alleges that the Missouri ‘065 Agreement and Assignment conveyed no actionable right to McWorthey as against ICRB, the Policy, the Pool, or Technology. (R.187, Second Am. Compl. ¶¶ 74-79). The Court previously dismissed Count VIII, without prejudice, for failure to allege any facts supporting its claims of “fraud and collusion.” (R.173, Order). ICRB subsequently amended its pleading, adding factual allegations derived from document discovery relating to (i) Omega’s actual and/or constructive knowledge that it had not procured applicable insurance coverage for the Judgment; (ii) the nature and extent of McWorthey’s injuries, including Omega’s knowledge thereof; and (iii) Omega’s decision to enter into a “lay down judgment” in the Underlying Lawsuit, wherein Omega’s counsel did not present evidence, cross-examine witnesses, make an opening or closing statement, or challenge any procedural or substantive aspect of the trial. (Compare R.187 at ¶¶ 77-79 with R.132 at ¶¶ 77-78). On the basis of these and other factual allegations concerning the purported “sham trial, ” ICRB added counts for insurance fraud under Indiana law (Count IX) and Illinois law (Count X). (R.187, Second Am. Compl. ¶¶ 80-122). McWorthey now seeks to dismiss Counts VIII, IX, and X for failure to plead with particularity.

         LEGAL STANDARD

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under federal pleading standards, a “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). “[T]he court must review the complaint to determine whether it contains enough fact to raise a reasonable expectation that discovery will reveal evidence to support liability for the wrongdoing alleged.” Adams v. City of Indianapolis, 742 F.3d 720, 729 (7th Cir. 2014) (citation omitted). In reviewing a complaint, the Court must accept all “factual allegations as true, and must draw all reasonable inferences in the plaintiff’s favor.” Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011).

         Beyond the requirements of Rule 12(b)(6), Rule 9(b) requires all allegations of fraud or mistake to be “stated with particularity.” Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007) (citing Fed.R.Civ.P. 9(b)). This requires a party to describe the “who, what, when, where, and how of the fraud.” Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 948 (7th Cir. 2013) (citation omitted).

         ANALYSIS

         I. Count VIII (Declaration Regarding the Missouri ‘065 Agreement and Assignment)

         McWorthey first argues that “the claims in Count VIII are purely opinion-based and without factual support.” (R.189, Opening Br. at 4). In reply brief, however, McWorthey observes that ICRB has included “many communications in its 64 page” amended complaint. (R.205, Reply at 12-14). As ICRB notes, “Paragraph 77 includes six subparagraphs, which include the dates, parties, and contents of communications” supporting its Count VIII claim. (R.201, Response Br. at 5-7). These communications concern Omega’s knowledge of McWorthey’s medical condition and the validity of the damages claimed in the Underlying Lawsuit. Against a Rule 12(b)(6) challenge, ICRB has pled sufficient factual support suggesting a right to declaratory relief above the speculative level. See Twombly, 550 U.S. at 555.

         McWorthey further argues that ICRB has not stated a claim for fraud, listing the elements of a common law fraud claim and citing to Merrilees v. Merrilees, 2013 IL App (1st) 121897, ¶ 34, 998 N.E.2d 147, 159 (1st Dist. 2013). (R.189, Opening Br. at 5). McWorthey has misconstrued Count VIII. Unlike Merrilees, which involved a fraud in the inducement claim, see 998 N.E.2d at 154-55, 159, ICRB here seeks a declaration that the Missouri ‘065 Agreement and Assignment conveyed no actionable rights. Assuming that Missouri substantive law applies (which ICRB contests), the Missouri ‘065 Agreement and Assignment is valid “if free of collusion or fraud.” Whitehead v. Lakeside Hosp. Ass’n, 844 S.W.2d 475, 480 (Mo.Ct.App. 1992). Here, accepting Count VIII’s allegations as true, and drawing all reasonable inferences in ICRB’s favor, ICRB has pled sufficient factual support to constitute a collusion challenge to the agreement’s validity. (R.187 at ¶ 79).[2] On the other hand, assuming that non-Missouri substantive law applies, ICRB has pled sufficient factual support to raise the inference that Omega and McWorthey entered into a legally-unavailable procedural device with knowledge that there was no insurable injury. (Id. at ¶¶ 77-79). Under either scenario, ICRB does not seek to recover common law fraud damages. Rather, ICRB seeks a judicial declaration with respect to the validity of ‘065 Agreement and Assignment. McWorthey’s motion fails to acknowledge this distinction. For these reasons, the Court denies McWorthey’s motion to dismiss Count VIII.

         II. Count IX and Count X

         In Counts IX and X, ICRB alleges that “McWorthey and/or Omega prepared and presented false information in order to make a claim to an insurer.” (R.187, Second Am. Compl. ¶¶ 81, 102). In particular, ICRB alleges that McWorthey and/or Omega presented an unsubstantiated $50 million insurance claim on the basis of “false information” - specifically, information “relating to the nature and extent of McWorthey’s injuries, McWorthey’s physical and mental condition, and the monetary damages related thereto.” (Id. ¶¶ 82-83, 103-04; R.187-5, Ltr. from Finney Law Office, LLC to Related Litigation Counsel, dated August 14, 2015, asserting a $50 million settlement demand). In addition, ICRB alleges, “McWorthey and Omega have taken numerous actions to collect on the [Policy], all without legal ...


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