Inrma v. Human Service Center

• Decision Date: 09 January 2008
• Docket Number: No. 4-07-0472.,4-07-0472.
• Citation: 884 N.E.2d 700,378 Ill.App.3d 713
• Parties: ILLINOIS NON-PROFIT RISK MANAGEMENT ASSOCATION, Plaintiff, v. HUMAN SERVICE CENTER OF SOUTHERN METRO-EAST, Trade Industries, Career Development Center, Five Star Industries, and Lawrence Crawford Association for Exceptional Citizens, Defendants and Third-Party Plaintiffs-Appellants (Risk Management Administrators, Inc., Stanley W. Murray, David Stover, Kenneth Best, Greg Shaver, Thorn Pollock, David Baker, Arlan McClain, and Jo McVey, Third-Party Defendants-Appellees).
• Court: United States Appellate Court of Illinois

884 N.E.2d 700

378 Ill.App.3d 713

ILLINOIS NON-PROFIT RISK MANAGEMENT ASSOCATION, Plaintiff, v. HUMAN SERVICE CENTER OF SOUTHERN METRO-EAST, Trade Industries, Career Development Center, Five Star Industries, and Lawrence Crawford Association for Exceptional Citizens, Defendants and Third-Party Plaintiffs-Appellants (Risk Management Administrators, Inc., Stanley W. Murray, David Stover, Kenneth Best, Greg Shaver, Thorn Pollock, David Baker, Arlan McClain, and Jo McVey, Third-Party Defendants-Appellees).

No. 4-07-0472.

Appellate Court of Illinois, Fourth District.

January 9, 2008.

Andrew J. Martone, L. Allison McKeel (argued), and Marvin L. Lindmark, of Bobroff, Hesse, Lindmark & Martone, P.C., St. Louis, Mo., for appellants.

Stanley L. Morris, of Quinn, Johnston, Henderson & Pretorius, Chtrd., Springfield, and James J. Sipchen (argued), of Pretzel & Stouffer, Chtrd., Chicago, for appellees Risk Management Administrators, Inc., and Stanley W. Murray.

Dwight H. O'Keefe III, Roland R. Cross, and Daniel K. Wright, of brown, Hay & Stephens, LLP, Springfield, for other appellees.

Justice TURNER delivered the opinion of the court:

Defendants and third-party plaintiffs (pool members), Human Service Center of Southern Metro-East, Trade Industries, Career Development Center, Five Star Industries, and Lawrence Crawford Association for Exceptional Citizens (Lawrence Crawford) appeal from the dismissal with prejudice and without leave to amend their third-party complaint concerning a workers' compensation self-insurance pool against third-party defendants, Risk Management Administrators, Inc. (RMA); Stanley W. Murray; David Stover; Kenneth Best; Greg Shaver; Thorn Pollock; David Baker; Arlan McClain; and Jo McVey.

On appeal, the pool members argue the trial court erred in dismissing their claims against third-party defendants. We affirm.

I. BACKGROUND

Plaintiff, Illinois Non-Profit Risk Management Association (INRMA), is a group workers' compensation self-insurance pool organized under the Illinois Insurance Code (Insurance Code) (215 ILCS 5/107a.04 (West 2002)). The pool members are five former insureds of the pool. RMA is the pool's administrator. Murray was the president of RMA. Stover, Best, Shaver, McClain, McVey, Pollock, and Baker were directors and trustees (trustees) of INRMA.

The pool members are not-for-profit agencies providing rehabilitation services to Illinois residents with physical and mental disabilities. At various times, pool members entered into pooling agreements with INRMA that provided the pool members with workers' compensation insurance coverage. The pooling agreements provided each pool member shall make annual contributions or premiums to the pool. Annual contributions were determined by using standard Insurance Code rates and each member's experience-modification factor. A deposit in the amount of 25% of the estimated annual contribution was due at the beginning of each pool year. Along with the annual contributions, pool members were subject to assessments, as necessary, for additional contributions on a pro rata basis of annual contributions. Assessments were levied when the loss experience exceeded the total net premiums collected. The pooling agreement provided members were liable for these year-end assessments for a three-year period regardless of whether they renewed their membership in the pool for the following year.

In February and March 2003, INRMA filed separate complaints against these five pool members for failure to pay the year-end assessments in breach of the parties' pooling agreements. Each pool member filed answers and counterclaims against INRMA and brought third-party actions against Murray, RMA, and the trustees. The cases were eventually consolidated.

In January 2005, the pool members, excluding Lawrence Crawford, filed a second-amended third-party complaint against Murray, RMA, and the trustees. Lawrence Crawford filed its third-party complaint in February 2005. The complaints set forth claims of breach of fiduciary duty (RMA and Murray) (count I), fraud (RMA and Murray) (count II), negligent misrepresentation (RMA and Murray) (count III), civil conspiracy (RMA and Murray) (count IV), breach of contract (RMA) (count V), and breach of fiduciary duty (trustees) (count VI). Count III was voluntarily withdrawn.

The third-party complaints alleged the pool members paid all annual contributions required under the pooling agreement. By 1999, the pool had developed a deficit and INRMA levied a $2 million assessment against the pool members. At that time, RMA, Murray, and the trustees allegedly represented to pool members that INRMA did not have a cash-flow problem, and the $2 million was not to pay operating expenses or claims losses but would be set aside with interest being returned to the pool. The dispute arose when INRMA levied three "extraordinary assessments," including $2 million in 2001, $3 million in 2002, and an additional $3.6 million dissolution assessment in 2002. The pool members refused to pay the additional assessments. INRMA ceased writing workers' compensation coverage in April 2002. The pool members alleged Murray, Stover, and others engaged in a scheme to deceive INRMA members about the true performance of the pool by manipulating INRMA's finances and making public statements about INRMA's financial performance that were false and misleading.

The third-party complaints alleged INRMA made payments of $161,740 in 1996 and $102,728 in 1997 to Risk Management Solutions, Inc. (RMS), despite Murray's letter to the Illinois Department of Insurance that RMS did not have operational employees or staff and did not perform services for INRMA during 1996 and 1997. The pool members also alleged INRMA paid $59,836 to FIRM, Inc., for promotional and newsletter services. The newsletters allegedly encouraged brokers of the pool to divert "good risk" existing and potential pool members from INRMA to a workers' compensation insurance entity controlled by Murray. The pool members alleged RMA, Murray, and the trustees participated in and approved the diversion of "good risk" members from the pool.

The third-party complaints alleged RMA owed a fiduciary duty to the pool members and breached that duty by, inter alia, misrepresenting the financial condition of the pool to pool members. In the civil conspiracy count, the pool members alleged RMA contracted with Ernst & Young to provide accounting services for INRMA. RMA and Murray then allegedly conspired with Ernst & Young to prepare inaccurate, untruthful, and deceptive reports for the purpose of misrepresenting the true financial condition of the pool. The pool members alleged they suffered damage in excess of $260,000, collectively, based on extraordinary and unwarranted assessments.

In January 2006, the trustees filed a motion to dismiss count VI of the second-amended third-party complaint pursuant to section 2-615 of the Code of Civil Procedure (Procedure Code) (735 ILCS 5/2-615 (West 2006)). The trustees argued the pool members could not maintain an action against them for breach of fiduciary duty, and even if they could, the complaint failed to allege facts sufficient to establish a fiduciary relationship.

RMA and Murray also filed a motion to dismiss counts I, II, IV, and V pursuant to section 2-619.1 of the Procedure Code (735 ILCS 5/2-619.1 (West 2006)). RMA and Murray argued the pool members' claim for breach of fiduciary duty in count I was barred by the doctrines of res judicata and collateral estoppel based on this court's decision in Illinois Non Profit Risk Management Ass'n v. Support Systems & Services, Inc., No. 4-05-0161 (October 21, 2005) (unpublished order under Supreme Court Rule 23) (hereinafter SSS). Count II's allegation of fraud was subject to dismissal because it was not pled with sufficient particularity and specificity. Further, counts IV and V failed to state a cause of action.

In May 2007, the trial court dismissed counts I, II, IV, and V against RMA and Murray with prejudice and without leave to amend. The court also dismissed count VI against the trustees with prejudice and without leave to amend. The court entered a finding that no just reason existed for delaying enforcement or appeal. See 210 Ill.2d R. 304(a). This appeal followed.

II. ANALYSIS

A. Standard of Review

In the case sub judice, the trustees filed a motion to dismiss under section 2-615 while RMA and Murray filed a motion to dismiss under section 2-619.1. A motion to dismiss under section 2-615 of the Procedure Code challenges only the legal sufficiency of the complaint. Russell v. Blagojevich, 367 Ill.App.3d 530, 532, 304 Ill.Dec. 843, 853 N.E.2d 920, 923 (2006). A motion under section 2-619.1 allows a party to "combine a section 2-615 motion to dismiss based upon a plaintiffs substantially insufficient pleadings with a section 2-619 motion to dismiss based upon certain defects or defenses." Edelman, Combs & Latturner v. Hinshaw & Culbertson, 338 Ill. App.3d 156, 164, 273 Ill.Dec. 149, 788 N.E.2d 740, 747 (2003). When reviewing a dismissal pursuant to sections 2-615 and 2-619 of the Procedure Code (735 ILCS 5/2-615, 2-619 (West 2006)), we accept all well-pleaded facts as true and make all reasonable inferences therefrom. Zahl v. Krupa, 365 Ill.App.3d 653, 658, 302 Ill.Dec. 867, 850 N.E.2d 304, 309 (2006). We review an order granting a motion to dismiss pursuant to section 2-615 or 2-619 de novo. Edelman, 338 Ill.App.3d at 164, 273 Ill.Dec. 149, 788 N.E.2d at 747-48.

B. Breach of Fiduciary Duty (RMA and Murray)

In dismissing the pool members' third-party complaint, the trial court did not specify the theories relied upon for dismissal. The pool members argue the court erred in dismissing their claim for breach of fiduciary duty against RMA and Murray (count I) pursuant to sections 2-619(a)(4) and 2-615 of the Procedure Code because the claim was not barred by res judicata or collateral estoppel or by section...