Smith v. Dixon Direct Corp.

215 F.Supp.3d 689

Marilyn SMITH, Plaintiff,

v. DIXON DIRECT CORPORATION d/b/a Dixon Direct,andVisant Corporation, a wholly owned subsidiary of Visant Holding Corporation,andUniCare Life & Health Insurance Company, Defendants.

No. 15 cv 7552

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

Signed January 21, 2016

Mark D. Debofsky, William Thomas Reynolds, IV, Debofsky & Associates, P.C., Chicago, IL, Elizabeth A. Uhrich, Pignatelli & Associates, PC, Rock Falls, IL, for Plaintiff.

Noah Gordon Lipschultz, Littler Mendelson, P.C., Minneapolis, MN, Blaire Bruns Johnson, Edison, McDowell & Hetherington LLP, Houston, TX, Jonathan William Garlough, Foley & Lardner, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

Elaine E. Bucklo, United States District Judge

In this action, plaintiff Marilyn Smith claims that defendants––sponsors of her deceased son's ERISA-regulated employee benefits package, and the issuer, underwriter, and payor of the life insurance policy included in that package—violated their fiduciary duties by paying life insurance benefits to a third party, Nancy Wilkinson, instead of to her. All defendants have moved to dismiss the complaint. I grant their motions for the following reasons.

I.

Plaintiff alleges that after her son, John Reed, learned in late September of 2009 that he might have cancer, he designated plaintiff as the sole beneficiary of his employer-sponsored life insurance policy. In the ensuing months, after his cancer diagnosis was confirmed, Mr. Reed received radiation treatment and chemotherapy treatment, as well as numerous medications for pain, depression, and anxiety, which plaintiff alleges caused alterations in Mr. Reed's mood and cognitive functioning. On January 22, 2010, while Mr. Reed was under the influence of multiple medications, an individual named Nancy Wilkinson fraudulently induced him to execute a document granting Ms. Wilkinson power of attorney as Mr. Reed's attorney-in-fact.

Mr. Reed was admitted into hospice care on February 11, 2010. Eight days later, in the presence of an employee of defendant Dixon, Ms. Wilkinson completed a Statement of Beneficiary Designation form, designating herself as primary beneficiary of Mr. Reed's life insurance policy. The Dixon employee made no effort to determine whether Mr. Reed intended Ms. Wilkinson to be the beneficiary of his life insurance policy, nor did she seek to ascertain whether Ms. Wilkinson had authority to execute the Statement of Beneficiary Designation form on Mr. Reed's behalf.

Mr. Reed died the following day, on February 20, 2010. Ms. Wilkinson filed a Beneficiary Claim Form with defendant UniCare on March 9, 2010, seeking payment of proceeds due under the policy. Shortly thereafter, UniCare certified the claim and issued payment to Ms. Wilkinson in the amount of $179,166.74.

According to the complaint, "[s]everal months after UniCare had issued payment to Ms. Wilkinson, Plaintiff became aware that Nancy Wilkinson had designed (sic) herself as beneficiary of the Policy the day before Mr. Reed died and subsequently collected the benefit payment from UniCare." Cmplt. at ¶ 30. The complaint goes on to allege that in September of 2011, after plaintiff's efforts to recover the life insurance proceeds from Ms. Wilkinson were unsuccessful, she intervened in a state court action against Ms. Wilkinson, in which plaintiff claimed damages resulting from Ms. Wilkinson's tortious interference with her expectancy of receiving Mr. Reed's life insurance benefits.

Discovery in the state case revealed to plaintiff in December of 2012 that UniCare's internal claims processing protocol included criteria known as "Red Flag Indicators." Plaintiff alleges that several of these indicators were present in Ms. Wilkinson's claim for life insurance benefits under Mr. Reed's policy: 1) a beneficiary who does not have an insurable interest; 2) a change in beneficiary shortly before the death of the insured; 3) the initiation or change in beneficiary to an apparently unrelated person, and 4) an unusual and unexpected change in beneficiary requested by the insured. Plaintiff alleges that under UniCare's protocol, the existence of multiple Red Flag Indicators required UniCare to "engage in further inquiry into possible fraudulent activity prior to issuing payment," but that UniCare failed to do so before paying benefits to Ms. Wilkinson.

Almost five years after learning that UniCare paid her son's life insurance benefits to Ms. Wilkinson, and more than two years after discovering the existence of the Red Flag Indicators, plaintiff submitted a claim to UniCare on February 17, 2015, claiming life insurance benefits under Mr. Reed's policy. UniCare denied the claim, explaining:

We have reviewed the claim on behalf of Mr. John Reed and find that we paid the claim correctly to Nancy Wilkinson as the named beneficiary at the time of Mr. Reed's death. It is our position that the Power of Attorney granted to Ms. Wilkinson includes the authority for insurance transactions and does not preclude her from designating benefits.

Additionally, it is the attorney-in-fact's, not UniCare's, responsibility to determine and abide by any loyalty to the principal/fiduciary obligations against self-dealing. UniCare is not in the position to monitor those, nor are we legally obligated to police those issues.

Cmplt. at ¶ 33. In response, plaintiff provided UniCare with evidence of Ms. Wilkinson's fraud, but UniCare again denied the claim. Id. at ¶ 34. Plaintiff formally appealed the denial on April 6, 2015, arguing that UniCare failed to adhere to its own internal protocol by ignoring the Red Flag Indicators present in Mr. Reed's file. The appeal was denied in a letter stating:

If you disagree with our determination, you...have the right to bring action in federal court under ERISA Section 502(a). You are entitled to receive, upon request and free of charge, copies of all documents, records, and other information relevant to your claim for benefits.

Id. at ¶ 35.

Plaintiff filed this lawsuit on August 27, 2015, claiming that she is entitled to equitable relief under § 502(a)(3) of ERISA, which provides that a participant may bring a civil action:

(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.

29 U.S.C. § 1132(a)(3). Plaintiff's prayer for relief asks "either that the Policy be reformed to designate Plaintiff as Mr. Reed's proper life insurance beneficiary at the time of his death or, in the alternative, that a surcharge remedy is owed to Plaintiff requiring the payment of monies equal to at least $140,650.41 and accrued interest in order to make her whole." Cmplt. at 11.

Defendants seek dismissal of the complaint on two grounds. First, all defendants argue that plaintiff's claim is barred by ERISA's three-year statute of limitations, and that dismissal is appropriate pursuant to Rule 12(b)(6) because plaintiff's allegations reveal that she was aware of her claim at least by September of 2011, when she intervened in the state court suit against Ms. Wilkinson.

Second, defendants Dixon and Visant argue that equitable relief under § 502(a)(3) is not appropriate because plaintiff's claim is properly characterized as a claim for benefits under the terms of Mr. Reed's policy, for which relief is available under § 502(a)(1)(B). That section provides that a plan participant may bring a civil action:

to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.

29 U.S.C. § 1132(a)(1)(B). Dixon and Visant assert that because this section affords relief for the injury plaintiff alleges, Varity Corp. v. Howe , 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), precludes her equitable claim.

II.

When resolving a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), I must accept the well-pled factual allegations in the complaint as true and draw all reasonable inferences based on those allegations in plaintiff's favor. Golden v. State Farm Mutual Automobile Ins. Co. , 745 F.3d 252, 255 (7th Cir. 2014). "Dismissing a complaint as untimely at the pleading stage is an unusual step, since a complaint need not anticipate and overcome affirmative defenses, such as the statute of limitations."

Cancer Found., Inc. v. Cerberus Capital Mgmt. , LP, 559 F.3d 671, 674 (7th Cir. 2009). Nevertheless, "if a plaintiff alleges facts sufficient to establish a statute of limitations defense, the district court may dismiss the complaint on that ground." O'Gorman v. City of Chicago , 777 F.3d 885, 889 (7th Cir. 2015).

ERISA's three-year statute of limitations is triggered when the person claiming to be harmed by a fiduciary's breach acquires "actual knowledge" of the occurrence giving rise to the alleged injury. Rush v. Martin Petersen , 83 F.3d 894, 896 (7th Cir. 1996). The Seventh Circuit defines "actual knowledge" in this context as "knowledge of the ‘essential facts of the transaction or conduct constituting the violation,’ " and has explained that it is " ‘not necessary for a potential plaintiff to have knowledge of every last detail of a transaction, or knowledge of its illegality.’ " Id. (quoting Martin v. Consultants & Administrators, Inc. , 966 F.2d 1078, 1086 (7th Cir. 1992)). Accordingly, plaintiff's claim began to accrue when she became "aware of [her] injury and its probable cause," even if she did not know until later that the injury was tortiously inflicted. U.S. v. Kubrick , 444 U.S. 111, 119, 100 S.Ct. 352, 62 L.Ed.2d 259 (1979).

Applying these principles to this case, it is clear that the allegations in the complaint set forth all that is required to establish the untimeliness of plaintiff's claim. The injury plaintiff alleges—defendants' payment to Ms. Wilkinson of life insurance benefits plaintiff claims...