Hub Int'l Midwest Ltd. v. AEU Benefits, LLC

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HUB INTERNATIONAL MIDWEST LIMITED, Plaintiff, v. AEU BENEFITS, LLC, et al. Defendants.

No. 22 C 1270

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

May 31, 2023

OPINION AND ORDER

Joan H. Lefkow U.S. District Judge

In this case, Plaintiff HUB International Midwest Limited (HUB), an insurance agency, files suit against various people and entities associated with AEU Benefits, LLC and involved in the operation of an employee medical benefits plan (“the AEU Plan”).^[1] (Dkt. 27.) HUB provided “certain limited customer service bridge type services” to employers who had employees with unpaid medical claims under the AEU Plan. (Dkt. 27 ¶ 36.) After the AEU Plan proved insolvent and unable to pay millions of dollars of alleged outstanding medical claims, the United States Department of Labor sued, and the AEU Plan was placed into receivership. (See dkts. 27-1, 27-2, 27-3 27-4.) HUB faces approximately $4 million in damages asserted against it in the underlying receivership action, as well as damages resulting from loss of business and reputational harm. (Dkt. 27 ¶¶ 55, 57.) In this lawsuit, HUB alleges that it incurred these damages because of misrepresentations made to it by defendants. Before the court is a motion to dismiss brought by two of those defendants-Thomas Stoughton and S.D. Trust Advisors, LLC (collectively, the S.D. Defendants)-who contend that this court lacks personal jurisdiction over them and that HUB has failed to state a claim against them. For the reasons described below, the S.D. Defendants' motion is denied.

BACKGROUND

HUB alleges the following facts in its First Amended Complaint. At all relevant times Defendant Stephen Satler was Chief Executive Officer and an owner of defendant AEU Holdings, LLC and was President and on the Board of Managers of defendant AEU Benefits, LLC (collectively, the AEU Defendants). (Dkt 27 ¶¶ 15-23.) The AEU Defendants managed and operated the AEU Plan along with Defendant Rodney Maynor (who is the sole owner, President, and Chief Executive Officer of non-party entities Black Wolf Consulting, Inc. and R. Maynor & Associates, Inc.). (Id. ¶¶ 15-23 29-30.) S.D. Trust is a limited liability company owned and operated in part by Stoughton, a Georgia resident. (Dkt. 27 ¶¶ 24, 27-28.) From December 12, 2016 until November 3, 2017, S.D. Trust's sole client was the AEU Plan. (Id. ¶ 25.) During this period, “SD Trust provided services to the Employer Groups covered by the AEU Plan, and to the AEU Plan, itself, by holding the assets of the Employer Groups in S.D. Trust's name at Iberia Bank, and paying money out of these accounts to other service providers at the AEU Defendants' direction.” (Id. ¶ 26.)

On March 9, 2017, HUB held a meeting at its Chicago, Illinois offices “regarding the status of the numerous unpaid medical benefits claims” under the AEU Plan. (Id. ¶¶ 31-33.) Satler attended this meeting as a representative of the AEU Defendants. (Id. ¶ 34.) Stoughton attended on behalf of S.D. Trust. (Id.) At the time of this meeting, “HUB was providing certain limited customer service bridge type services to employers of the employees, including, but not limited to, those employees whose unpaid medical claims were under discussion” (id. ¶ 35), and therefore “HUB had a legitimate interest in being correctly informed as to servicing issues and whether and when unpaid medical claims would be paid, and whether and when future medical benefits claims would be paid for [enrolled] employees” (id. ¶ 37). HUB provided these services at Maynor's request, and all defendants were aware that HUB was providing such services. (Id. ¶¶ 35-36.)

At the March 9, 2017 meeting, Satler and Stoughton made representations that the AEU Plan “was on track to and would, in fact, fund, process, and pay all of the outstanding unpaid medical benefits claims, as well as future claims, concerning plan participants and their beneficiaries in connection with employer groups associated with HUB.” (Id. ¶ 38.) These defendants also made a “specific representation” as to their “near term timetable for promptly funding and paying all outstanding unpaid medical benefits claims” (id.): “unpaid claims would be funded based on a schedule with the $140,000 in smaller claims funded ‘now' and $171,000 funded by March 17, 2017 with the remainder of the unpaid claims to be paid by [the AEU Plan] shortly thereafter” (id. ¶ 42). Satler and Stoughton further informed HUB that the AEU Plan “was and would remain financially sound and would timely pay medical benefits claims” (id. ¶ 39), and they “explicitly encouraged and requested HUB to keep employer groups and their associated employees/plan participants and their beneficiaries enrolled in [the AEU Plan].” (Id. ¶ 40.) Satler and Stoughton also “impliedly and explicitly encouraged and requested HUB .. to also refer additional employer groups to the medical benefits plan based upon the represented financial strength and soundness of [the AEU Plan] ... and its represented ability to timely fund and pay benefits claims then, and into the future.” (Id. ¶ 41.) Finally, Satler and Stoughton told the HUB representatives “that there was in place an excess policy at an attachment point of $125,000 through Lloyd's of London that would cover claims exposures.” (Id. ¶ 43.)

Despite these representations, a March 2017 memorandum circulated among the AEU Defendants “acknowledged that the AEU Plan [was] materially underfunded with approximately 21,000 unpaid claims.” (Id. ¶ 46.) Similarly, a written communication in April 2017 from Maynor to Stoughton regarded “unpaid claims and complaints from [plan] participants.” (Id. ¶ 47.) Furthermore, S.D. Trust had been aware of the unpaid claims problem-and had been unable to forward the full amount of requested funds to claims administrators-since at least February 13, 2017. (Dkt. 27-1 ¶ 128). Contrary to the representations Satler and Stoughton made at the March 9, 2017 meeting, the AEU Plan failed to timely fund and pay all of the unpaid medical benefit claims. (Dkt. 27 ¶ 51.) As a result of this insolvency, HUB incurred significant damages-including potential legal liability, legal fees, loss of business, and reputational harm. (Id. ¶¶ 55-57.)

Neither the AEU Defendants nor the S.D. Defendants ever disclosed the AEU Plan's inability to pay claims to HUB, the employer groups for which HUB was providing customer service bridge services, or AEU Plan participants and beneficiaries. (Id. ¶¶ 48-50.) HUB alleges that Satler and Stoughton either knew or should have known that the representations they made as to the AEU Plan's solvency at the March 9, 2017 meeting were false (id. ¶ 52), and that it could have taken action to avert the damages it incurred had Satler and Stoughton provided “true and accurate information” (id. ¶ 58).

Based on these facts, HUB filed suit in the Northern District of Illinois. In its Second Amended Complaint (dkt. 27), HUB brings claims for negligent misrepresentation (Count I) and fraudulent misrepresentation (Count II) against the S.D. Defendants. The S.D. Defendants now move to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) and for failure to state a claim on all counts under Rule 12(b)(6). (Dkt. 29.)

DEFENDANTS' 12(b)(2) MOTION TO DISMISS

The S.D. Defendants argue in their Rule 12(b)(2) motion to dismiss that the court lacks specific personal jurisdiction over them and that, even if the court finds jurisdiction proper, the court should decline to exercise such jurisdiction over Stoughton due to the fiduciary shield doctrine. These arguments are unavailing, and the court concludes that it has personal jurisdiction over both S.D Defendants.

A. Legal Standard

A motion to dismiss under Rule 12(b)(2) challenges the ability of the court to exercise personal jurisdiction over the defendants. Fed.R.Civ.P. 12(b)(2). After a defendant makes a Rule 12(b)(2) motion, the plaintiff bears the burden of establishing personal jurisdiction. Rogers v. City of Hobart, 996 F.3d 812, 818 (7th Cir. 2021). If, as here, the court rules on the motion to dismiss without holding an evidentiary hearing, “the plaintiff bears only the burden of making a prima facie case for personal jurisdiction.” Curry v. Revolution Labs., LLC, 949 F.3d 385, 392-93 (7th Cir. 2020). In evaluating whether the plaintiff has met its burden, “[t]he court will take the plaintiff's asserted facts as true and resolve any factual disputes in its favor.” Id. at 392 (internal quotation marks omitted). But unlike a Rule 12(b)(6) motion, the court is not limited to considering the facts alleged in the complaint and may consider affidavits submitted by the parties. See NBA Properties, Inc. v. HANWJH, 46 F.4th 614, 620 (7th Cir. 2022). When the parties submit affidavits, “both parties' affidavits are accepted as true, and where they conflict, the plaintiff is entitled to resolution in its favor.” Id.

B. Specific Jurisdiction

The S.D. Defendants argue that the court lacks personal jurisdiction over them. In a diversity case with claims based in Illinois common law, “a federal court sitting in Illinois may exercise jurisdiction over the defendants ... only if authorized both by Illinois law and by the United States Constitution.” Matlin v. Spin Master Corp., 921 F.3d 701, 705 (7th Cir. 2019) (cleaned up). But “[b]ecause the Illinois long-arm statute extends as far as the Constitution permits, [courts] need only look to whether exercising personal jurisdiction . would comport with federal due process.” Rogers, 996 F.3d at 818 (citing 735 Ill. Comp. Stat. 5/2-209(c)). Under the Due Process Clause of the Fourteenth Amendment, “a tribunal's authority depends on the defendant's having such ‘contacts' with the forum State...