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Mercola v. Abdou

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

December 12, 2016

JOSEPH MERCOLA, as Trustee of the Joseph M. Mercola Declaration of Trust, JANET SELVIG, as Trustee of the Mercola Insurance Trust, and MERCOLA.COM HEALTH RESOURCES, LLC, Plaintiffs,
v.
MOSTAFA ABDOU, MARK ZIEBOLD, and THE KOENIG GROUP, LLC, Defendants/Third-Party Plaintiffs,
v.
MICHAEL A. PASSANANTI, individually and as agent of DUGGAN BERTSCH, LLC, DUGGAN BERTSCH, LLC, ANDREW BENNETT, individually and as agent of AXA ADVISORS, LLC, and AXA ADVISORS, LLC d/b/a Business Strategies Group of Illinois, Third-Party Defendants.

          MEMORANDUM OPINION AND ORDER

          GARY FEINERMAN, UNITED STATES DISTRICT JUDGE

         Joseph Mercola (along with his sister and his company, who can be ignored) alleges in this diversity suit that attorney Mark Ziebold, insurance broker Mostafa Abdou, and Abdou's employer, The Koenig Group, LLC, hoodwinked him into purchasing several premium financed life insurance policies. Doc. 139. The operative complaint alleges legal malpractice against Ziebold, breach of fiduciary duty against Abdou and Koenig, and common law and statutory fraud against Abdou. Earlier in the case, the court denied Defendants' motions to dismiss. Docs. 59-60 (reported at 2015 WL 3545414 (N.D. Ill. June 5, 2015)); Docs. 66-67 (reported at 2015 WL 4475287 (N.D. Ill. July 21, 2015)).

         After answering, Defendants-whom this opinion will call “Third-Party Plaintiffs”- filed third-party complaints under the Illinois Joint Tortfeasor Contribution Act (“JTCA”), 740 ILCS 100/2(a), against the investment advisor AXA Advisors, LLC, its agent Andrew Bennett, and the law firm Duggan Bertsch, LLC (and a Duggan partner, who can be ignored). Docs. 176-78. Because the third-party complaints are materially identical, they will be referred to in the singular and only one will be cited. Third-Party Defendants have moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the third-party complaints. Docs. 196, 213, 215. In addition, Duggan has moved under the JTCA for a finding that the settlement it reached with Mercola was made in good faith and thus bars the third-party contribution claims against it. Doc. 235. The motions are denied.

         Background

         On a Rule 12(b)(6) motion, the court must accept the third-party complaint's well-pleaded factual allegations, with all reasonable inferences drawn in Third-Party Plaintiffs' favor, but 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 [third-party] complaint, documents that are critical to the [third-party] complaint and referred to in it, and information that is subject to proper judicial notice, ” along with additional facts set forth in Third-Party Plaintiffs' briefs opposing dismissal, so long as those additional facts “are consistent with the pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013). The facts are set forth as favorably to Third-Party Plaintiffs as those materials permit. See Pierce v. Zoetis, 818 F.3d 274, 277 (7th Cir. 2016).

         Mercola's allegations against Third-Party Plaintiffs are set forth in a prior opinion, familiarity with which is assumed. 2015 WL 3545414 at *1-2. The third-party complaint acknowledges the existence though not the truth of Mercola's allegations, i.e., that Third-Party Plaintiffs breached their fiduciary duties to Mercola, made negligent misrepresentations, and committed legal malpractice in connection with Mercola's obtaining premium financed life insurance policies, and that as a result, Mercola incurred substantial losses when he surrendered those policies and repaid the loans that he had used to finance the premiums. Doc. 176 at ¶¶ 16-22. The third-party complaint proceeds to allege the following. On or about October 2013, when he still held the policies, Mercola retained Bennett, AXA Advisors, and Duggan to be his “Financial Advisory Team” and advise him about the policies. Id. at ¶¶ 23-25. Based on their advice, Mercola prematurely surrendered the policies, incurring losses alleged to exceed $3 million. Id. at ¶ 26. In advising Mercola to prematurely surrender the policies, Third-Party Defendants breached the duty of care that they owed Mercola, thus giving rise to third-party contribution liability to Third-Party Plaintiffs. Id. at ¶¶ 29-30, 34-35.

         Discussion

         I. Third-Party Defendants' Motion to Dismiss

         A. Whether the Third-Party Claims Comply With Rule 14

         Rule 14(a) states that “[a] defending party may, as third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable to it for all or part of the claim against it.” Fed.R.Civ.P. 14(a)(1). Third-Party Defendants argue that Rule 14(a) allows a third-party complaint only if the third-party plaintiff alleges that the third-party defendant is derivatively liable to the third-party plaintiff for the plaintiff's claim against it. Doc. 198 at 7-8. In this, Third-Party Defendants are correct. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 368 n.3 (1978); Hartford Acc. and Indem. Co. v. Sullivan, 846 F.2d 377, 381 (7th Cir. 1988) (“[I]t is hard to see how [the requirements of Rule 14] could be fulfilled unless the third-party's liability was derivative.”). Third-Party Defendants then argue that the third-party complaint, which charges that they acted negligently towards Mercola, does not allege that they are derivatively liable to Third-Party Plaintiffs. Doc. 198 at 8-11. In this, they are wrong.

         Whether derivative liability exists is a question of substantive law, which in this diversity suit is Illinois law. See Ragusa v. City of Streator, 95 F.R.D. 527, 528 (N.D. Ill. 1982) (“Though Rule 14(a) establishes the procedure for bringing in a third party, choice of law rules direct us to Illinois law to determine the substantive propriety of doing so.”); 6 Charles Allen Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 1448, at 453-54 (3d ed. 2010) (“If the governing substantive law recognizes a right of contribution, impleader under Rule 14 is a proper procedure by which to seek relief from joint tortfeasors.”). The JTCA states that “where 2 or more persons are subject to liability in tort arising out of the same injury to person or property, or the same wrongful death, there is a right of contribution among them, even though judgment has not been entered against any or all of them.” 740 ILCS 100/2(a). The third-party complaint alleges that “in the event” Third-Party Plaintiffs are held liable to Mercola, they should recover from Third-Party Defendants “by way of contribution … an amount as is commensurate with the relative degree of culpability or fault attributable” to Third-Party Defendants. Doc. 176 at ¶¶ 31, 36. Thus, any liability that Third-Party Defendants may have to Third-Party Plaintiffs depends on, and thus is derivative of, Third-Party Plaintiffs' liability to Mercola. It follows that the third-party complaints for contribution under the JTCA are proper under Rule 14(a). See Dowe v. Nat'l R.R. Passenger Corp., 2003 WL 22383016, *4 (N.D. Ill. Oct. 17, 2003) (“If the particular alleged tortfeasor who is sued wants to protect itself against paying more than its ‘fair share' of the plaintiff's damages, it can do so (if permitted by the relevant jurisdiction's law) by making contribution claims against the other joint tortfeasors as third party claims under Rule 14.”).

         B. Whether the Third-Party Complaint States a Viable Contribution Claim Under Illinois Law

         As noted, the JTCA allows contribution claims only if the third-party plaintiff's liability arises from the “same injury” to the plaintiff as does the third-party defendant's liability. Third-Party Defendants argue that the third-party claims do not satisfy this requirement because they simply allege “a variation of ‘it was him, not ...


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