Crichton v. Golden Rule Ins. Co.

• Decision Date: 05 August 2009
• Docket Number: No. 07-3333.,07-3333.
• Citation: 576 F.3d 392
• Parties: John H. CRICHTON, Jr., on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. GOLDEN RULE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

576 F.3d 392

John H. CRICHTON, Jr., on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. GOLDEN RULE INSURANCE COMPANY, Defendant-Appellee.

No. 07-3333.

United States Court of Appeals, Seventh Circuit.

Argued March 31, 2008.

Decided August 5, 2009.

Daniel J. Becka, Cherry & Associates, Chicago, IL, Daniel E. Bacine, Mark R. Rosen (argued), Barrack, Rodos & Bacine, Philadelphia, PA, for Plaintiff-Appellant.

Lawrence R. Desideri (argued), David J. Doyle, Winston & Strawn, Chicago, IL, for Defendant-Appellee.

Before KANNE, EVANS, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

John Crichton, Jr., sued Golden Rule Insurance Company asserting three fraud-based claims. The district court dismissed one claim with prejudice and gave Crichton an opportunity to replead the other two. That effort was unsuccessful; the district court held that the allegations in the remaining two claims failed to state a claim for relief and dismissed the case in its entirety. Crichton's appeal requires us to consider three questions: (1) whether Crichton had standing to bring a claim under the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILL.COMP. STAT. 505/2 (2006), and somewhat relatedly, whether he may maintain a claim under Florida's analog to that act, see FLA. STAT. ANN. § 501.201 (West 2006); (2) whether Crichton adequately pleaded a claim for common-law fraud; and (3) whether Crichton adequately pleaded a RICO (Racketeer Influenced and Corrupt Organizations Act) claim. We answer each question "no" and affirm the judgment of the district court.

I. Background

Florida resident John Crichton began purchasing group health insurance from Golden Rule in 1995 under a master policy offered only to members of the Federation of American Consumers and Travelers ("the Federation"), a nonprofit organization that provided its members with (among other services) discounts on insurance through group-buying power. Crichton renewed his insurance every year through 2004. In 2002 he filed a complaint against Golden Rule in the Circuit Court of Madison County, Illinois, seeking to represent a nationwide class of Federation members who bought insurance from Golden Rule. His lawsuit alleged violations of the ICFA and, if his proposed class was certified, a host of other state consumer-fraud statutes. Crichton later amended his suit to add the Federation as a defendant. The Federation sought and received summary judgment in its favor and successfully defended that judgment on appeal. See Crichton v. Golden Rule Ins. Co., 358 Ill.App.3d 1137, 295 Ill.Dec. 393, 832 N.E.2d 843, 851-54 (2005). Crichton's claims against Golden Rule were dismissed without prejudice based on forum non conveniens. (Golden Rule is an Illinois corporation with its principal place of business in Indiana.)

Crichton next proceeded to the District Court for the Southern District of Illinois where he filed a complaint against Golden Rule under the diversity jurisdiction of 28 U.S.C. § 1332(d). He reasserted his claim for an alleged violation of the ICFA (and his class claim under the consumer-fraud statutes of other states) and also alleged a claim of common-law fraud. He later amended his complaint to include a third count, a RICO claim. The gist of all three claims was that Golden Rule had induced him to purchase insurance by an artificially low introductory premium and that Golden Rule failed to inform him that the cost of his renewal premiums would escalate dramatically because of Golden Rule's practice of closing blocks of insurance to new enrollees.

Golden Rule moved to dismiss Crichton's amended complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The district court granted the motion with prejudice on the ICFA count but without prejudice on the common-law fraud and RICO counts. Crichton then filed his second amended complaint, repleading his common-law fraud and RICO allegations (this time with greater specificity in an effort to meet the requirements of Federal Rule of Civil Procedure 9(b)); he also repleaded, "for the record," the ICFA claim. Golden Rule once again moved to dismiss. The district court dismissed Crichton's common-law fraud and RICO claims with prejudice for failure to state a claim, ignored the already dismissed-with-prejudice ICFA claim, and entered final judgment in favor of Golden Rule.

II. Discussion

We review the district court's order dismissing Crichton's claims de novo, St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir.2007), and will affirm the dismissal if he did not plead "sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face,'" Ashcroft v. Iqbal, ___ U.S. ___, ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In addition, Crichton's fraud-based claims are subject to Rule 9(b)'s heightened pleading requirements, which means that the circumstances constituting the fraud must be pleaded "with particularity." FED.R.CIV.P. 9(b).

As an initial matter, the parties debate whether the amended or second amended complaint is the operative complaint for review. As we have noted, after the district court dismissed the ICFA count in the amended complaint with prejudice, Crichton repleaded it in his second amended complaint "for the record," adding certain facts and rearranging the nature of his individual and class claims under the Florida statutory analog. On appeal Golden Rule argues that the facts Crichton added in the second amended complaint are out of bounds on our review of the earlier dismissed-with-prejudice ICFA claim, citing Tricontinental Industries, Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824 (7th Cir.2007).

In Tricontinental, the defendants moved to dismiss the plaintiffs' amended complaint, and while that motion was pending, the plaintiffs sought and obtained leave to file a second amended complaint adding two new claims. The plaintiffs' second amended complaint, however, not only added the proposed new claims but also supplemented the allegations in the original claims. In dismissing the claims asserted in the plaintiffs' amended complaint, the district court declined to consider the supplemental allegations in the second amended complaint because leave to replead those original claims had not been granted. The court later dismissed the additional claims in the second amended complaint. On appeal we confined our review of the dismissed claims from the first amended complaint to the allegations in that complaint, rejecting the plaintiffs' argument that we should consider the supplemental allegations contained in the second amended complaint. Id. at 838 n. 8. We reasoned that because the district court had only granted leave to add two new claims, not to replead the original claims, it would be inappropriate to consider on appeal the supplemental allegations contained in the second amended complaint. Id.

This case is similar. The ICFA claim in Crichton's amended complaint was dismissed with prejudice; Crichton was granted leave to replead only his commonlaw fraud and RICO claims. Repleading (and attempting to bolster) his ICFA claim in the second amended complaint "for the record" was thus gratuitous, and the district court was within its discretion to ignore it. Accordingly, we will review the common-law fraud and RICO allegations contained in the second amended complaint and confine our review of the ICFA claim to the allegations in the amended complaint.

A. Standing under the ICFA

The district court dismissed Crichton's claim under the ICFA because Crichton—a resident of Florida—lacked standing to sue under the Illinois statute. The court applied the test announced by the Illinois Supreme Court in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, 296 Ill.Dec. 448, 835 N.E.2d 801 (2005), which severely limited the extraterritorial reach of the ICFA. The court held in Avery that nonresident plaintiffs may sue under the ICFA only if the circumstances relating to the alleged fraudulent transaction occurred mostly in Illinois. 296 Ill.Dec. 448, 835 N.E.2d at 852-53.

More specifically, the Illinois Supreme Court held that the ICFA did not create a cause of action for fraudulent acts that had little or no connection to the state of Illinois. Id. Accordingly, for a nonresident plaintiff to have standing under the Act, the court required that "the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois." Id. at 853-54, 296 Ill.Dec. at 500-01. The court acknowledged that this was not a bright-line rule but rather a highly fact-bound inquiry in which no single factor would be dispositive. Id. at 854, 296 Ill. Dec. at 501.

The facts of Avery help illustrate the test's operation. There, the nonresident plaintiffs were consumers who alleged that their automobile insurer had engaged in fraudulent acts by supplying substitute parts on insured repairs. Although the insurer had its headquarters in Illinois, the court held that the consumers could not avail themselves of the ICFA based on that fact alone. Id. Most of the relevant circumstances underlying the alleged fraudulent activity in Avery had no connection to Illinois: The consumers did not reside there; they received repair estimates in their home states; those repairs were made elsewhere; the alleged deception itself took place in states other than Illinois; and the plaintiffs communicated with local agents, not the home office in Illinois. Id.

Phillips v. Bally Total Fitness Holding Corp., 372 Ill.App.3d 53, 309 Ill.Dec. 947, 865 N.E.2d 310 (2007), provides another example of how the Avery test operates. There, two nonresident plaintiffs alleged that a health-club chain headquartered in Illinois had violated the Act by refusing to cancel their memberships. But as...