Croteau, Jones, Moore v. National Better Living Association et al

INSURANCE: Dissolved Tennessee “junk health insurance” entity has capacity to be sued on theory of successor liability… fraud, constructive fraud, RICO claims sufficiently pled, punitives may be appropriate… most claims not time-barred… personal jurisdiction exercised over Georgia marketing support entity… alleged relationship among Defendants sufficient to support “affiliation” theory… contract elements sufficiently pled, parol evidence argument is a defense… allegations support unjust enrichment, racketeering claims… claims for fraud, negligent misrepresentation, constructive fraud, vicarious liability sufficiently particularized against each Defendant… claims by one Plaintiff against insurer precluded by settlement agreement absent production of “separate agreement” covering additional medicals or reasoned interpretation of settlement agreement to the contrary… Molloy.

Statement of claims by Carol Croteau, Renee Jones, and Keith Moore. This action concerns Defendants’ deceptive, predatory, concerted scheme to enrich themselves at the expense of financially vulnerable insureds by marketing membership in the National Better Living Association and selling junk health insurance as a “group benefit.” NBLA was authorized to transact business in Montana 11/08 to 2/12 when the authority was revoked. NBLA markets itself as membership association that seeks to improve quality of life through wellness services, including group benefits. It represents that it has 10,000 members nationwide. Defendants target consumers who cannot afford or do not qualify for credible coverage and then utilize “tell them anything” Internet and phone marketing to sell what they are led to believe is comprehensive health insurance when it was mere limited medical coverage. The scheme is orchestrated by NBLA contracting with Allied Health Benefits with significant overlap of officers & directors. AHB contracts with call centers such as Albert Cormier Solutions and Health Lead Systems. After the “sale” is closed and banking information taken for immediate debiting, consumers are transferred to an insurance producer who rattles off an incomprehensible disclaimer about the coverage. Members are then sent a package describing the benefits. They are unaware of the scam until they submit medical bills. Of the 318 claims submitted by the roughly 200 Montana consumers 12/06-12/09 when United States Life Ins. was providing coverage, only 6 were paid any amount. The 3 named Plaintiffs incurred more than $200,000 in denied medicals for which they believed they had coverage. This is statistical evidence of fraud. Plaintiffs bring this action pursuant to RICO in addition to claims for breach of contract, fraud, constructive fraud, negligence, misrepresentation, and unjust enrichment.

ACS moves to dismiss pursuant to Rules 12(b)(6) & 9(b). NBLA, AHB, and individual Defendants move to dismiss pursuant to Rules 12(b)(2), 12(b)(6), 8(a)(2), 8(c)(1), and 9(b). USLI moves to dismiss pursuant to 12(b)(6).

ACS argues that its legal existence was terminated and assets distributed prior to the filing of the complaint 5/21/13 and thus it lacks the capacity to be sued. It was dissolved by the Tennessee SOS in 8/10. A year later it filed articles of termination which stipulate that all assets were distributed to creditors & members. It argues that under Tennessee law, claims against dissolved entities are only enforceable to the extent of the undistributed assets. Plaintiffs respond that they are entitled to discovery as to insurance coverage, circumstances of dissolution, and possible successor liability. Both arguments miss the mark. ACS misinterprets Tennessee law as to notification of claims on dissolution of an LLC. Plaintiffs’ position is vacant of any supporting authority. An investigation of Tennessee corporation law reveals that Plaintiffs’ claims may proceed on a theory of successor liability as they are brought within 3 years of the filing of the articles terminating ACS. If discovery reveals information supporting claims against members or holders of financial rights of the now-dissolved entity, joinder may be required under Rule 19.

Plaintiffs’ fraud, constructive fraud, and RICO claims are sufficiently pled. Moore’s fraud claim against ACS accounts for the who, what, when, where, and how of the alleged fraud in each of the specific elements of the prima facie claim under Montana law. In detailing the parties, Plaintiffs have accounted for the specific role ACS played in the alleged fraudulent scheme. Introduction of allegations common to all counts and common to Moore also contribute the necessary detail. Moore’s constructive fraud claim against ACS details the circumstances surrounding his claim that he would not have purchased the policy but for the alleged misrepresentation that it provided a comprehensive benefit. Plaintiffs’ RICO claims meet the 9th Circuit standard in that they identify the time, place, and manner of each fraud, and the role of each Defendant in the scheme. Moore (9th Cir. 1989). ACS argues that incorporation by reference of introductory allegations common to each Plaintiff and all counts is insufficient, citing Geraldine (Mont. 2008). There, a count alleging constructive fraud only consisted a sentence incorporating previous allegations by reference and a sentence alleging the circumstances. Plaintiffs’ fraud count incorporates earlier statements common to each Plaintiff and common to all counts by reference, but the statements which follow detail how earlier allegations fit with each element of a claim for fraud under Montana law. Moore’s constructive fraud claim proceeds similarly, as does Plaintiffs’ RICO claim. Because Plaintiffs present a viable, sufficiently pled claim for fraud, punitives may be appropriate, and ACS’s motion to dismiss this claim is denied.

Jones agrees that fraud and constructive fraud claims are barred by the 2-year statute. As to her negligence claims, ASC argues that she knew or should have known that she purchased only limited medical benefits as early as 8/09 when she received a packet detailing them. However, the dispute as to when she became aware that her pregnancy claims would not be covered is a fact question. Plaintiffs agree that all of Croteau’s claims except breach of contract and RICO are time-barred. She became an NBLA member in 9/08. Medical claims she made related to an accident in 11/08 were denied in 12/08. Construed in the light most favorable to her, she became aware of the limited benefits in 12/08; this action commenced 4 years later. The parties dispute the statute for unjust enrichment. Construed in the light most favorable to Croteau, this is an action brought upon a contract in writing with an 8-year statute and is timely pled. Dismissal of her RICO claim pursuant to the 4-year statute is not appropriate because ACS has not presented specific facts surrounding denial of her claims. Moore’s fraud and constructive fraud claims as to denial of payment for a major cardiac event in 5/11 are not barred by the 2-year statute. NBLA et al also claim dismissal of some of Plaintiffs’ claims as time-barred. Many of these arguments parallel those by ACS, and are dismissed for the same reasons.

The individual Defendants argue that the Court lacks personal jurisdiction over them. Plaintiffs do not object to dismissal of claims against the individual Defendants.

Plaintiffs have alleged sufficient facts to support personal jurisdiction over AHB. They allege that it assisted in operations and other support services, “including contracting with third parties on behalf of NBLA for sales and marketing of its membership services and benefits.” They also allege significant overlap of officers and directors. They claim AHB contracted with call centers to target consumers seeking affordable health insurance over 5 years, eventually triggering an investigation by the Insurance Commissioner. These allegations are sufficient to establish a continuous & systematic pattern of activity upon which to base personal jurisdiction. They are also sufficient for specific personal jurisdiction as they present a cause for a tort: fraud. MRCivP 4(B)(1)(b). AHB’s CEO’s averment that it never contracted with ACS or HLS to solicit members for the NBLA is not sufficient to divest the Court of personal jurisdiction. Plaintiffs’ complaint implicates AHB in a sustained pattern of activity to market NBLA memberships to Montanans — grounds for the torts alleged. The CEO’s affidavit at most establishes a contested question of fact as to the extent of AHB’s involvement in the scheme.

The relationship alleged among Defendants is pled with sufficient detail to support Plaintiffs’ “affiliation theory.”

Plaintiffs have sufficiently pled elements of a contract to survive dismissal. Construed in a light most favorable to them, the contract dispute concerns an oral agreement for health insurance. Defendants’ argument as to the parol evidence rule is a defense.

Defendants contend that Plaintiffs have not alleged any misconduct, reliance, or cognizable injury to support their unjust enrichment claim. Plaintiffs allege that Defendants took money for memberships in NBLA for which no value was provided, detail allegations of misconduct or fault, and allege that Defendants took advantage of them. These allegations are sufficient for an unjust enrichment claim under Montana law. Pruyn (Mont. 2009).

Plaintiffs sufficiently plead a pattern of predicate acts constituting racketeering to avoid dismissal under Rules 9(b) or 12(b)(6). One example of a racketeering pattern cited in HJ (US 1989) is a scheme by which bogus insurance is marketed and sold to a variety of consumers with repeated collection of premiums month-to-month.

Defendants argue that Plaintiffs have “lumped” them together in articulating claims for fraud, negligent misrepresentation, constructive fraud, and vicarious liability contrary to Rule 9(b). However, they presented particularized allegations against each specific Defendant as to each Plaintiff, detailing their role in the alleged scheme.

USLI argues that terms of the consent agreement it executed with the Insurance Commissioner and the settlement agreement fully resolve all of Croteau’s claims against it. She counters that it violated the settlement agreement and she is no longer bound by it. She claims it agreed to pay her outstanding medicals and that payment of $11,000 to KRMC did not resolve $37,597 owed to other providers. Pursuant to the consent agreement, USLI agreed to pay “some … outstanding medical claims.” An email from an attorney for the Commissioner indicates outstanding medicals with KRMC will be paid pursuant to these agreements. Croteau argues that USLI should have paid other claims pursuant to a “separate agreement.” The consent agreement indicates that it “constitutes the entire agreement between the parties and that no other promises or agreements, either express or implied, have been made.” Even construed in the light most favorable to Croteau, the consent and settlement agreements appear to resolve all of her claims against USLI. Absent production of the “separate agreement” or a reasoned interpretation of the settlement documents that might give rise to a claim for relief, her claims against USLI are dismissed. She will be granted leave to amend her complaint against USLI.

USLI argues that Moore was never insured by USLI. Plaintiffs do not object to dismissal of his claims against USLI.

Croteau, Jones, and Moore v. National Better Living Association et al, 40 MFR 356, 5/30/13.

Amy Eddy & David Sandler (Bottomly, Eddy & Sandler), Kalispell, for Plaintiffs; John Oxendine, Atlanta, Lewis Hassett (Morris, Manning & Martin), Atlanta, Michael Lober (Lober, Dobson & Desai), Roswell, Ga., and Shandor Badaruddin (Moriarity, Badaruddin & Booke), Missoula, for NBLA and AHB; Kevin Feeback (Gough, Shanahan, Johnson & Waterman), Helena, for USLI; Bradley Luck & Jeffrey Roth (Garlington, Lohn & Robinson), for Life Ins. of North America; Kimberly Beatty (Browning, Kaleczyc, Berry & Hoven), Helena, for ACS.