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Elmhurst Lincoln-Mercury, Inc. v. Mears

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

August 29, 2016



          Gary Feinerman, Judge

         On February 18, 2016, Elmhurst Lincoln-Mercury, Inc. Employees 401(k) Profit Sharing Plan and Trust (“the Plan”), by its acting trustee, Thomas Potts, Jr., filed this ERISA and negligence suit against its former trustee David Mears, Elmhurst Lincoln-Mercury (“ELM”), ELM's insurer Universal Underwriters Insurance Company, and James F. Best P.C., a law firm that represented Universal in earlier litigation related to the Plan. Doc. 1. A default has been entered against ELM and Mears under Federal Rule of Civil Procedure 55(a). Doc. 40. Universal and Best move under Rules 12(b)(6) and 16(f) to dismiss the claims against them on several grounds, including that the Plan, by filing this suit, improperly split claims that it could and should have brought in a closely related case, Weir v. Elmhurst Lincoln-Mercury, Inc., No. 13 C 2694 (N.D. Ill. filed Apr. 10, 2013). Docs. 35, 38. The motions are granted.


         In resolving a Rule 12(b)(6) motion, the court assumes the truth of the operative complaint's well-pleaded factual allegations, though not its legal conclusions. See Zahn v. N. Am. Power & Gas, LLC, 815 F.3d 1082, 1087 (7th Cir. 2016). The court must also consider “documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice, ” along with additional facts set forth in the Plan's brief opposing dismissal, so long as those facts “are consistent with the pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013) (internal quotation marks omitted); see also Defender Sec. Co. v. First Mercury Ins. Co., 803 F.3d 327, 335 (7th Cir. 2015). The facts are set forth as favorably to the Plan as those materials allow. See Pierce v. Zoetis, 818 F.3d 274, 277 (7th Cir. 2016). In setting forth those facts, the court does not vouch for their accuracy. See Jay E. Hayden Found. v. First Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir. 2010). Because the Weir suit provides much of the background for this suit and underpins the motions to dismiss, the court takes judicial notice of the filings in Weir. See Ennenga v. Starns, 677 F.3d 766, 773-74 (7th Cir. 2012) (holding that public court documents are judicially noticeable); Henson v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994) (same, and collecting cases).

         ELM is a defunct Delaware corporation that was registered with the Illinois Secretary of State until August 13, 2010, when the Secretary revoked its authority to do business in Illinois. Doc. 32 (16 C 2390) at ¶ 5. The Plan is ELM's ERISA-qualified profit-sharing plan, which provided benefits to eligible ELM employees. Id. at ¶ 7.

         On April 10, 2013, James Weir, a former ELM employee and Plan beneficiary, brought the Weir suit against ELM, the Plan, ELM's successor corporation Bright Leasing, Inc., and Mears (ELM's former owner and the Plan's then-trustee), alleging ERISA violations. Doc. 1 (13 C 2694) at ¶¶ 4-5, 7, 19-50. The suit also sought injunctive relief against Oppenheimer & Co., an investment firm that held the Plan's funds on deposit. Id. at ¶¶ 6, 51-58. Weir filed a corrected complaint the following day, Doc. 5 (13 C 2694); a first amended complaint on July 1, 2013, Doc. 18 (13 C 2694); and then, with the court's approval, a second amended complaint on May 9, 2014, Doc. 51-52 (13 C 2694). The second amended complaint added Universal as a defendant, alleging that Universal, in its role in the defense and settlement of two earlier federal and state court suits brought on behalf of Plan participants Michael Lureau and Martin Felt (the “Lureau/Felt litigation”), breached its ERISA fiduciary duty to the other beneficiaries, including Weir. Doc. 51 at ¶¶ 14-19, 43-51. On August 11, 2014, the court in Weir set deadlines for written discovery, dispositive motions, and motions to amend the pleadings and add new parties. Doc. 68 (13 C 2694). In particular, the order set a December 8, 2014 deadline for motions to amend the pleadings or add new parties. Ibid.

         On November 25, 2014, Weir moved to remove Mears as the Plan's trustee and to replace him with Larry Shippe. Doc. 77 (13 C 2694). The court granted the motion on December 2, 2014, and in the same order granted the parties' joint oral motion to extend the deadlines and, in particular, extended the deadline for filing motions to amend the pleadings or add new parties to February 2, 2015. Doc. 80 (13 C 2694). On January 16, 2015, Weir moved to vacate the order appointing Shippe as the Plan's trustee and to instead appoint Potts. Doc. 81 (13 C 2694). On January 22, 2015-eleven days before the February 2, 2015 deadline for moving to amend the pleadings or add new parties-the court granted the motion to appoint Potts. Doc. 84 (13 C 2694). Neither Weir nor the Plan moved to extend the February 2, 2015 deadline.

         On February 12, 2015, the court referred the case to Magistrate Judge Cox for a settlement conference. Docs. 85-86 (13 C 2694). On March 18, 2015, Weir's counsel, Glenn Gaffney, filed an appearance on behalf of the Plan; Gaffney also represents the Plan in this case. Doc. 90 (13 C 2694); Doc. 2 (16 C 2390). On March 26, 2015, the court, on the parties' agreement, extended the discovery and dispositive motion deadlines, but neither Weir nor the Plan sought to extend the deadline for moving to amend the pleadings or add parties. Doc. 93 (13 C 2694). A settlement conference was held on May 6, 2015, and the parties proceeded before Magistrate Judge Cox through September 2015 regarding the parties' continued settlement discussions. Docs. 100, 111, 113 (Case 13 C 2694).

         In the meantime, on December 8, 2014, Universal brought suit in the Circuit Court of Cook County, Illinois (the “Coverage Action”), seeking a declaration that Universal has no coverage obligations to indemnify ELM, Bright, Mears, and the Plan in the Weir suit. Universal Underwriters Ins. Co. v. Elmhurst Lincoln-Mercury, Inc., No. 2014 CH 19590 (Cir. Ct. Cook Cnty. filed Dec. 8, 2014). Weir and Potts removed the Coverage Action to federal court, where it was assigned to District Judge Dow. Doc. 1 (15 C 2400). On April 9, 2015, Weir moved to reassign and consolidate the Coverage Action with Weir. Doc. 95 (13 C 2694). At a hearing on that motion on April 15, 2015, Doc. 99 (13 C 2694), the Plan (through Gaffney) orally sought leave to file an ERISA cross-claim against Universal (its co-defendant) in Weir. Doc. 38-2 (16 C 2390) at 11. The court denied the oral motion, reminded counsel that the time to amend the pleadings had closed, and suggested that the Plan file a written motion for leave to file a cross-claim against Universal. Id. at 11-12. The Plan did not file that motion.

         On June 1, 2015, Judge Dow remanded the Coverage Action to state court. Doc. 18 (15 C 2400). After the remand, on September 18, 2015, Weir and the Plan filed counterclaims against Universal in the Coverage Action. Docs. 38-3, 38-4 (16 C 2390). The counterclaims alleged, among other things, common law fraud and civil conspiracy, and were premised on allegations materially identical to those underpinning Weir's ERISA claim against Universal in the Weir suit. Compare Doc. 52 (13 C 2694) at ¶¶ 13-19, with Doc. 38-3 (16 C 2390) at 66-68, and Doc. 38-4 (16 C 2390) at 67-70.

         On December 9, 2015, in the Weir suit, the Plan moved in writing for leave to file an ERISA cross-claim against Universal based on Universal's alleged role in the defense and settlement of the Lureau/Felt litigation, and a third-party claim against Best, which, as noted, had represented Universal in that litigation. Doc. 134-2 (13 C 2694); Doc. 32 (16 C 2390) at ¶ 43; Doc. 38-6 (16 C 2390). The court set a briefing schedule for that motion. Doc. 137 (13 C 2694). At the presentment hearing, the court observed that Gaffney at the time was representing both Weir, the plaintiff, and the Plan, a defendant; the court observed that such dual representation might be problematic. Gaffney apparently agreed, see Ill. Rules of Professional Conduct 1.7(b)(3) (“[A] lawyer may represent a client if … the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation.”), for on December 21, 2015, Weir (via Gaffney) moved to dismiss his claim against the Plan. Doc. 138 (13 C 2694). The court granted the motion. Doc. 141 (13 C 2694). And because that dismissal resulted in the Plan no longer being a party in Weir, the court denied as moot the Plan's motion for leave to file a cross-claim against Universal and a third-party claim against Best. Ibid. Before doing so, the court asked Gaffney on the record whether that was proper course of action; Gaffney agreed that it was, and acknowledged that the Plan's next step was to file a motion to intervene. Ibid.

         But the Plan did not and has not filed a motion to intervene Weir. Rather, after Universal moved to enforce the settlement that it believed (incorrectly) it had negotiated with Weir and the Plan at the May 2015 settlement conference, Doc. 144 (13 C 2694); Doc. 160 (13 C 2694) (denying the motion), the Plan filed this suit. Doc. 1 (16 C 2390). The operative complaint asserts ERISA claims against ELM and Mears (Count I), and ERISA claims against Universal (Count II), and ERISA and negligence claims against Best (Counts III-IV) based on Universal's and Best's roles in the defense and settlement of the Lureau/Felt litigation. Doc. 32 (16 C 2390). On May 23, 2016, Weir moved in Weir to consolidate this case with Weir. Doc. 180 (13 C 2694). After Universal indicated that it would move to dismiss this case, the court denied Weir's motion to consolidate without prejudice to renewal after the resolution of the motions to dismiss. Doc. 182 (13 C 2694).


         Universal contends that the Plan's claims against Universal and Best are duplicative of claims brought in Weir and also violate the rule against claim splitting. Doc. 38 (16 C 2390) at 6-9; Doc. ...

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