Preferred Capital Funding of Nev., LLC v. Howard
| Decision Date | 10 January 2020 |
| Docket Number | No. 19 C 6245,19 C 6245 |
| Parties | PREFERRED CAPITAL FUNDING OF NEVADA, LLC, Plaintiff, v. PHILLIP TIMOTHY HOWARD, JEFF KAHN, and HOWARD & ASSOCIATES, P.A., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Plaintiff Preferred Capital Funding of Nevada, LLC ("Preferred Capital") sued Defendants Phillip Timothy Howard, Jeff Kahn, and Howard & Associates, P.A. (the "Firm") for fraud. Preferred Capital provides funding to litigation plaintiffs. Howard is a lawyer, and he and his Firm represent former NFL players bringing claims against the NFL for brain injuries sustained during their time in the league. Preferred Capital alleges that Defendants made false statements to Preferred Capital about the NFL players' medical diagnoses to induce Preferred Capital to make loans to the players. Preferred Capital also alleges that Howard then directed the players to invest the loans into an investment fund run by Howard, which Howard used to pay his personal mortgage and to provide settlement advances to other NFL players.
Howard, an attorney representing himself and his Firm, now moves to dismiss the complaint. He cites a number of Federal Rules of Civil Procedure and purports to seek dismissal on a variety of grounds, but his arguments are either perfunctory and undeveloped, or rambling and irrelevant. The motion to dismiss [Dkt. 8] is denied. Howard also seeks Rule 11 sanctions against Preferred Capital for filing a frivolous complaint. The motion for sanctions [Dkt. 20] is denied.
The following factual allegations are drawn from Preferred Capital's complaint (Dkt. 1) and are accepted as true for purposes of this motion to dismiss. W. Bend Mut. Ins. Co. v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016).
Preferred Capital provides loans to individuals to help them pay for pending litigation. (Dkt. 1 ¶ 10.) The loans are made with the knowledge of the attorney handling the litigation, based on the attorney's assessment of the strength of the case. (Id.) Preferred Capital decides whether to make individual loans by assessing the strength of a person's claims and their ability to repay the loan terms. (Id. ¶ 11.)
Since 1995, Howard has been an attorney and the director of Florida-based Howard & Associates, P.A. (the "Firm"). (Id. ¶ 12.) Howard and the Firm represent former National Football League ("NFL") players in claims against the league for brain injury. (Id. ¶ 13.) The NFL settled a class action lawsuit in the United States District Court for the Eastern District of Pennsylvania (the "Settlement"). (Id. ¶ 15.) As part of the Settlement, all former NFL players are permitted to register and be assessed for brain injury according to a standardized protocol. (Id.) Players who choose to register and seek compensation must comply with the terms of the Settlement, which include a list of permissible diagnosing doctors and specific diagnostic criteria. (Id. ¶ 16.) In other words, in order to recover under the Settlement, players must undergo particular testing by Settlement-approved physicians. (Id. ¶ 22.) Monetary awards under the Settlement are determined by the severity and timing of diagnosis. (Id. ¶ 19, 21.) The Settlement provides recovery for diagnoses defined as "Level 1.5" (early dementia), "Level 2" (moderate dementia), Alzheimer'sdisease, Parkinson's disease, ALS, or Death with CTE. (Id.) A "Level 1" diagnosis is insufficient for recovery but allows for a "wait and see" approach, because the Settlement spans 65 years from the settlement date. (Id. ¶ 20.)
Howard entered into contracts to handle the cases of 31 current or former NFL players. (Id. ¶ 23.) Howard told Preferred Capital (both directly and through a broker, Jeff Kahn) that the players needed loans while the NFL concussion lawsuit was pending. (Id. ¶ 24.) Howard and Kahn told Preferred Capital that all the players they were referring to Preferred Capital to receive loans were qualified to receive a recovery from the NFL under the Settlement. (Id. ¶ 25.) Howard and the Firm specifically told Preferred Capital that medical evaluations of the 31 players indicated they all suffered levels of traumatic brain injury (Levels 1.5 or 2) that would substantiate claims under the Settlement. (Id. ¶ 26.) The Firm also told Preferred Capital that it was using Settlement-approved physicians to evaluate the players. (Id. ¶ 27.) Howard and the Firm primarily used one physician, Dr. J. Lucas Koberda, to evaluate the players. (Id. ¶ 28.) During a conference call, Preferred Capital personnel raised concerns about Dr. Koberda to Howard and Kahn. (Id. ¶ 29.) Howard assured Preferred Capital that Dr. Koberda was qualified to assess and diagnose players under the Settlement guidelines and that his testing methods complied with the Settlement's testing protocols. (Id. ¶¶ 30-31.)
Preferred Capital issued loans to all 31 players based on documents provided by Howard, the Firm, Kahn, and Dr. Koberda. (Id. ¶ 32.) Dr. Koberda approved Level 1.5 or Level 2 diagnoses for all players referred to him by Howard and the Firm. (Id. ¶ 33.) Many players who received loans from Preferred Capital were instructed by Defendants to place the loan money with Capital Group Advisors, LLC, also known as Cambridge Capital Advisors, LLC ("Cambridge Group"), an investment adviser firm that Howard was the President, owner, and director of from March2015 through March 2017. (Id. ¶ 34.) Howard told the players that their loan money was being placed in investment funds focused on "individual equity and broad market index opportunities . . . with a secondary focus on short term private options on litigation settlement claims and short term lending opportunities." (Id. ¶ 36.) Instead, the funds were used to provide settlement advances to NFL players being solicited to join in the Settlement lawsuit, to pay Howard's fees, and to fund Howard's personal mortgage loans. (Id. ¶¶ 37-38.) Kahn was employed by or affiliated with Cambridge Group. (Id. ¶ 40.)
Howard and the Firm transferred many of the NFL players' cases to Amir Shenaq, a Texas-based solo practitioner who also specializes in NFL settlements. (Id. ¶¶ 43-44.) Preferred Capital was never notified of the transfer. (Id. ¶ 45.) In March 2019, Preferred Capital learned that many of the players' claims (as many as 26 out of the 31) were not approved under the medical guidelines in the Settlement because the players received test results of "Did not Impair" or "Testing Invalid." (Id. ¶¶ 46-47.) Several of the players are still waiting for test results, and only a handful of players have met Settlement standards for recovery. (Id. ¶ 48.)
Preferred Capital alleges that Howard, Kahn, and the Firm referred players to Preferred Capital to receive loans even though they knew the players' diagnoses were invalid. (Id. ¶ 51.) It further alleges that Howard, Kahn, and the Firm used the same physician to make false diagnoses in order to procure money from Preferred Capital, which they then funneled into Cambridge Group. (Id. ¶ 53.) Preferred Capital alleges it relied on Defendants' statements and would not have made loans to the NFL players if Defendants had not made those statements. (Id. ¶¶ 57-58.) Preferred Capital alleges it suffered $5,843,354.20 in damages as a result of Defendants' conduct. (Id. ¶ 59.)
Defendants Phillip Howard and the Firm now move to dismiss the complaint, to strike the complaint, move for a more definite statement, and move for sanctions. Defendants' motions are denied in their entirety.
Defendants first move to dismiss for lack of subject-matter jurisdiction. According to Defendants, the Court lacks subject-matter jurisdiction over the case because: a) there is no contract or agreement between the parties; b) Defendants have not provided any "independent medical information" to Preferred Capital; and c) Preferred Capital is not a lending institution, a physician, a Settlement-approved physician, or a "risk and lending advisor[] to lending institutions." (Dkt. 8 at 1-2.) Despite making these various assertions, Defendants do not actually argue how any of this impacts the Court's subject-matter jurisdiction—perhaps because it is all irrelevant. As the Complaint makes clear, the Court has subject-matter jurisdiction based on 28 U.S.C. § 1332, which requires complete diversity between the parties and more than $75,000 at issue. Both requirements are met here. Preferred Capital is an Illinois citizen, Howard is a Florida citizen, the Firm is a Florida citizen, and Kahn is a New York citizen; and Preferred Capital claims $5.8 million in damages. (Dkt. 1 ¶¶ 5-9, 59.) Defendants do not dispute any of those allegations, and none of Defendants' assertions are relevant to the Court's subject-matter jurisdiction over this case.
Defendants next move to dismiss the Firm for lack of personal jurisdiction because "Howard & Associates, P.A. does not exist as a law firm, has never existed, and is not a proper party." (Dkt. 8 at 2.) A federal district court exercising diversity jurisdiction has personaljurisdiction over a nonresident only if a court of the state in which it sits (in this case, Illinois) would have such jurisdiction. See, e.g., N. Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014); Jennings v. AC Hydraulic A/S, 383 F.3d 546, 548 (7th Cir. 2004). Id. (quoting 735 Ill. Comp. Stat. 5/2-209(a)(1)).
The plaintiff bears the burden of establishing personal jurisdiction when the defendant challenges it, to the extent Defendants' single-sentence argument (devoid of any analysis or citations) can be considered a jurisdictional challenge. See N. Grain, 743 F.3d at 491. Here, Preferred Capital argues that...
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