United States District Court, S.D. Indiana, Indianapolis Division
For ALLSTATE INSURANCE COMPANY, Plaintiff: Christine V. Anto, Victor J. Piekarski, PRO HAC VICE, Erika S Stamper, SMITHAMUNDSEN, LLC, Chicago, IL.
For PREFERRED FINANCIAL SOLUTIONS, INC., JEFFREY BROOKS, CREDIT CARD RELIEF, INC., Defendants: James Braden Chapman, II, Leeann Pels Simpkins, Mark R. Waterfill, BENESCH, FRIEDLANDER, COPLAN & ARONOFF, LLP, Indianapolis, IN.
For THOMAS P. DAKICH, doing business as DAKICH & ASSOCIATES, Defendant: Leeann Pels Simpkins, Mark R. Waterfill, BENESCH, FRIEDLANDER, COPLAN & ARONOFF, LLP, Indianapolis, IN.
Order on Cross-Motions for Summary Judgment
Debra McVicker Lynch, United States Magistrate Judge.
This lawsuit concerns Allstate Insurance Company's obligations to the defendants with respect to a class action lawsuit filed in Georgia against the defendants and others (the " Underlying Litigation" ). Allstate has moved for judgment as a matter of law that its insurance policies do not provide coverage for the class action claims and that it therefore has no duty to provide a defense in the Underlying Litigation and no duty to indemnify any of the defendants against any judgment that may be entered against them. Allstate also argues that defendants Credit Card Relief, Inc. and Thomas P. Dakich d/b/a Dakich & Associates are not within the class of insureds under the policies. Three of the defendants have cross-moved for summary judgment. Preferred Financial Solutions, Inc., Jeffrey Brooks, and Credit Card Relief, Inc. argue that they are entitled to judgment that they are insureds and that Allstate owes a duty to defend them. They do not maintain, however, that the court can determine as a matter of law Allstate's indemnity obligations at this juncture. Defendant Thomas P. Dakich d/b/a Dakich
& Associates has not responded to Allstate's summary judgment motion or filed a cross-motion, even though he is represented by the same counsel who represents the other defendants.
Summary Judgment Standard
Summary judgment is appropriate when " there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Substantive law determines the facts that are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine issue of material fact exists if " there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 249. The court construes the evidence in the light most favorable to the nonmoving party and draws all reasonable inferences from the evidence in favor of the nonmoving party. Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009). When evaluating cross-motions for summary judgment, therefore, the court construes the evidence and its reasonable inferences in favor of the party against which the particular motion under consideration is made. Metro Life Ins. Co. v. Johnson, 297 F.3d 558, 561-62 (7th Cir. 2002). " [I]f genuine doubts remain and a reasonable fact-finder could find for the party opposing the motion, summary judgment is inappropriate." Olayan v. Holder, 833 F.Supp.2d 1052, 2011 WL 6300615 at *5 (S.D. Ind. 2011).
The Policies at Issue
Allstate issued yearly Business Insurance Policies to " Preferred Leads"  that were in effect from July 20, 2002 to July 20, 2012. The first three annual policies (commencing July 20, 2002, July 20, 2003, and July 20, 2004) covered business premises in Indiana and Illinois. Beginning July 20, 2005, separate policies were issued for the Indiana premises and the Illinois premises.
Allstate contends that because the Underlying Litigation concerns activities associated only with the Indiana premises, then only the three early policies that covered both Indiana and Illinois premises and the 2005 through 2012 Indiana Policies (" Indiana Business Policies" ) could possibly provide coverage. Allstate argues it is thus entitled to summary judgment that there is no coverage, and no duty to defend or to indemnify, with respect to the separate Illinois Policies issued annually from July 20, 2005 through July 20, 2012 (the " Illinois Policies" ). The defendants did not respond to Allstate's argument regarding the Illinois Policies and did not identify any factual disputes precluding judgment in Allstate's favor that there is no coverage under the Illinois Policies. The court therefore enters a declaratory judgment in favor of Allstate and against all defendants that no coverage exists, and no duty to defend or to indemnify arises, under the Illinois Policies as to any defendants with respect to the Underlying Litigation.
The parties agree that the relevant language in all the Indiana Business Policies is materially identical. The court's rulings thus apply identically for all the Indiana Business Policies.
The parties also agree that Indiana substantive law governs coverage obligations and duties to defend arising from the Indiana Business Policies. An insurance policy is a contract and its construction and interpretation is generally a question of law resolved by the same principles
applicable to other contracts. Dunn v. Meridian Mut. Ins. Co., 836 N.E.2d 249, 251 (Ind. 2005); Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 (Ind. 1997). The court's objective is to ascertain and enforce the parties' intent as manifested by the contract language. Cotton v. Auto-Owners Ins. Co., 937 N.E.2d 414, 416 (Ind.Ct.App. 2010). If the contract language is ambiguous--meaning that the language is susceptible to more than interpretation and reasonably intelligent persons could honestly take different sides as to its meaning--then the court must construe that language against the insurer and in favor of its insured. E.g., State Farm Mut. Ins. Co. v. D'Angelo, 875 N.E.2d 789, 796 (Ind.Ct.App. 2007).
The Indiana Business Policies require Allstate to defend any lawsuit " brought against persons insured seeking damages to which [the comprehensive liability insurance] applies even if the allegations in the suit are groundless, false or fraudulent." ( See Exemplar Policy, Dkt. 1-2 at p. 38). If the claims against the defendants in the Underlying Litigation potentially fall within indemnity coverage provided by the Policies, then Allstate's duty to defend is triggered. Newman Mfg., Inc. v. Transcontinental Ins. Co., 871 N.E.2d 396, 401-02 (Ind.Ct.App. 2007) (a duty to defend arises when there is the possibility of indemnity coverage under the policy). On the other hand, if it is clear that the claims against the insured are " patently outside the risks" for which coverage is afforded by the Policies, then Allstate has no duty to defend the claims or, of course, to indemnify its insureds in the event that the claims are decided against them. Id. See also West Bend Mut. Ins. Co. v. United States Fid. & Guar. Co.., 598 F.3d 918, 922 (7th Cir. 2010) (applying Indiana law) (where claim is patently outside the risks covered by the policy, the insurer has no duty to defend).
The court now turns to the parties' disputes regarding Allstate's coverage obligations. We first describe the Underlying Litigation. We then address who is an insured under the Indiana Business Policies. Finally, we consider whether the claims in the Underlying Litigation could possibly fall within Allstate's coverage obligations and thus trigger Allstate's duty to defend.
The Underlying Litigation
The Underlying Litigation is a putative class action filed in the Middle District of Georgia (Case No. 5:11-cv-00422) by Tina M. Gregory and Eddie James Wells against the defendants in this case (Preferred Financial Solutions, Credit Card Relief, Thomas P. Dakich d/b/a Dakich & Associates, Jeffrey Brooks) and seven other individuals. The operative complaint is a Third Amended Complaint (" TAC" ) for Damages in Class Action, filed August 13, 2013, as docket no. 77 in the Underlying Litigation.
The plaintiffs are a class of Georgia residents who purchased " debt adjusting" services. They claim that the defendants " conspired together to comprise a debt adjustment services operation targeting financially-troubled consumers [and] extracting exorbitant fees for worthless services from individuals least able to afford it." (TAC, ¶ 2). They assert that the defendants are jointly and severally liable to the plaintiffs either as conspirators,
joint venturers, as alter egos of each other, aiders and abettors, or under a piercing the corporate veil theory. (TAC, ¶ ¶ 3, 4, 5, 6).
The complaint in the Underlying Litigation describes the roles of the defendants as follows: Preferred Financial Solutions (" PFS" ) and Credit Card Relief are the entities with which and through which the individual defendants participated in the debt adjustment services advertised and sold to Georgia residents. Thomas P. Dakich and Jeff Whitehead are attorneys who acted as PFS's " national mediation counsel" and communicated with Georgia debtors and their creditors. Rhoda Roell-Taylor and Laquetta Pearson are attorneys licensed to practice law in Georgia who ostensibly acted as attorneys for Georgia debtors who contracted for the debt services. Jeffrey Brooks, Larry D. Wilson, Steve Mylinski, Daniel Yuska, and Rod Miller are principals or employees of PFS who participated in the creation, marketing, or operations of the debt service business.
The roles of PFS and Credit Card Relief are also described in an affidavit by Jeffrey Brooks submitted in support of the defendants' motion for summary judgment. (Dkt. 39-1). According to the affidavit, Mr. Brooks is the president of both PFS and Credit Card Relief. Credit Card Relief's business is marketing the services of attorneys to negotiate debt relief for consumers. PFS is the " back-office service provider" to law firms that negotiate debt relief. Together and " as joint venturers," PFS and Credit Card Relief ran a " marketing operation to advertise and promote the services of attorneys who negotiate and settle consumers' credit card debt." (Dkt. 39-1, ¶ 5).
Debt adjustment services are regulated by a Georgia statute, the Georgia Debt Adjustment Act, OCGA 18-5-1 et seq. Among other requirements, the Georgia Act limits the maximum fees that may be charged by a debt adjuster, requires each debtor's funds to be maintained in a separate trust account, and requires the disbursement of a debtor's funds (less authorized fees) within 30 days of their receipt. The Act excludes from its purview " those situations involving debt adjusting incurred in the practice of law in this state." OCGA 18-5-3.
According to the TAC in the Underlying Litigation, the defendants offered a Debt Settlement Plan and a client selected credit card debts to " enroll" in the Plan. A total monthly payment was then determined and the client was responsible for paying this amount to a trust controlled by one or more of the defendants for the benefit of the client's creditors. The client then would stop making payments directly to her creditors, and an attorney affiliated with the defendants (but whom the client purportedly retained separately) would use " technology and negotiating skills" to settle the debts at a steep discount from the amount the client owed when she enrolled the debts in the Plan. The client agreed to the following fees: (a) a 7% enrollment fee measured on the total debt the client enrolled in the Plan, (b) a $49.95 monthly maintenance fee, (c) a 25% settlement fee measured on the amount " saved" on a debt, and (d) a $120.00 Local Participating Program Attorney fee. The Program Attorney fee ostensibly paid for the services of a Georgia-licensed attorney to prepare an attorney engagement letter, review the client's enrollment forms, and conduct an " initial telephone consultation" with the client.
The class plaintiffs contend that they enrolled debts in the Plan and made monthly payments as directed, and the defendants collected the enrollment fee, monthly maintenance fee, and attorney
fee, but that none of the plaintiffs' debts were ever settled. Plaintiff Gregory--whose experience is alleged to be typical of the putative class members--never spoke to anyone who purported to be her Plan lawyer. She enrolled $26,210 of debt in the Plan, paid the $120 attorney fee, and made $250 bi-monthly electronic funds transfers to the Plan for six months, from February 2008 through July 2008. Ms. Gregory cancelled her enrollment in July 2008, by which time no payments had been made to her creditors, none of her debts had been settled, and no attempts were ever made to settle her debts. At cancellation, the defendants sent Ms. Gregory a check for $849.59 and claimed that the remaining funds she had paid to the trust were earned by the defendants as their enrollment fee ($1,830.76), monthly maintenance fees ($49.95 for six months, or a total of $299.70), and attorney fee ($120).
Plaintiff Gregory and the putative class contend that the defendants' conduct (a) violated the Georgia Act; (b) was grounded in fraudulent representations regarding their debt services; (c) was grounded in negligent representations or " unintentional false representations" regarding their debt ...