Francis T. Foster v. Principal Life Insurance Compa ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 14-3203
FRANCIS T. FOSTER,
Plaintiff-Appellant,
v.
PRINCIPAL LIFE INSURANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:13-cv-03066 — Rebecca R. Pallmeyer, Judge.
ARGUED S EPTEMBER 18, 2015 — DECIDED NOVEMBER 25, 2015
Before BAUER, KANNE, and ROVNER, Circuit Judges.
ROVNER, Circuit Judge. Principal Life Insurance Company
moved to dismiss Francis T. Foster’s complaint for failure to
state a claim. The district court dismissed the complaint but did
so because the court concluded that Foster’s claim against
Principal was “derivative” of a related lawsuit that had already
been settled. Although Foster’s complaint was not a model of
clarity, we conclude that it stated a claim that was not pre-
2 No. 14-3203
cluded by any other litigation. We therefore vacate the judg-
ment and remand for further proceedings.
I.
In reviewing this dismissal, we accept all well-pleaded
factual allegations in the complaint and draw all reasonable
inferences from those facts in favor of Foster. Richards v.
Kiernan, 461 F.3d 880, 882 (7th Cir. 2006). We begin with the
cast of characters in the hopes of dispelling the confusion that
clouded matters in the district court. The Regional Transporta-
tion Authority (“RTA”) runs six bus lines in northern Illinois
under its Pace Suburban Bus Division (“Pace”). Each Pace bus
line has its own pension and 401(k) retirement plan (the “Pace
Plans”). The RTA also has its own retirement plan, the “RTA
Plan.” We will refer to the Pace Plans and the RTA Plan
collectively as the Plans. Each of the Plans is run by a commit-
tee composed of an equal number of union and management
representatives. The Pace Plans, which are considered private
trusts created for the benefit of the covered employees,
appointed Principal as the trustee. Principal held title to the
assets of the Pace Plans for the benefit of participants and their
beneficiaries. As trustee, Principal had a fiduciary duty to
follow the terms of the Pace Plan documents.
In 2003, each of the committees for the Pace Plans passed a
resolution retaining Foster to act as the lawyer representing the
interests of the Plans. 1 The committees instructed Principal to
1
Foster had been representing the Plan committees since the 1980s. The
2003 resolutions were the most recent authorizations of his representation
(continued...)
No. 14-3203 3
pay Foster a fixed monthly fee from the jointly administered
trust funds for the Pace Plans. This arrangement worked
without incident for a number of years until January 2011. At
that time, Foster notified Pace’s Board of Directors (“Pace
Board”) that one of the Pace Plans was underfunded in
violation of the Illinois Pension Code. Foster told the Pace
Board that Pace was required to make additional contributions
of $181,360 for 2009, and $235,190 for 2010. This was unwel-
come news at Pace, and Pace management employees subse-
quently retaliated by attempting to terminate Foster’s employ-
ment as lawyer for the Plan committees. But Pace management
lacked authority to terminate Foster’s employment. Only the
Plan committees held the power to terminate Foster and they
had not done so.
Foster sent a letter to Pace, informing the company that,
under the Pace Plan documents, termination of his representa-
tion could be accomplished only by a vote of each of the
governing committees of the Pace Plans. Pace responded by
attempting to terminate both Foster’s representation of the
RTA Plan and his fee agreement with the RTA Plan. Pace also
instructed Principal to stop paying Foster’s monthly fees for
services rendered to the Pace Plans after March 1, 2011.
Although only the Pace Plan committees had the authority to
order Principal to stop paying Foster, Principal, through its
employee Darrell Washington, wrongfully complied with
Pace’s directive and stopped paying Foster. After the stop-
payment order went into effect, Foster advised Washington
1
(...continued)
from the committees at the time of these events.
4 No. 14-3203
that Pace’s directive was an illegal and retaliatory act. He told
Washington that only the Pace Plan committees had authority
to stop his monthly payments, and that Pace’s instructions
were unauthorized, null and void. Washington would not
identify the person at Pace who issued the directive to stop
payments to Foster. He told Foster that Principal would follow
the instructions and orders of only Pace and not the Pace Plan
committees. Foster then provided to Principal signed state-
ments from each of the Pace Plan union committee members
affirming that they had not authorized the stop-payment on
Foster’s fees. Principal ignored these signed statements and
continued to follow the instructions of the unnamed Pace
employee rather than the Pace Plan committees.
Foster also sent a letter to the RTA, which has supervisory
responsibilities over Pace, informing the RTA that Pace had
violated various state and federal laws as a result of these
actions. In this same letter, Foster informed the RTA that one
of the Pace Plans was underfunded for 2009 and 2010. The
executive director of the RTA, Joseph Costello, refused to take
any action in response to Foster’s letter. Instead, Foster
asserted, Costello retaliated against Foster by inducing the
RTA Plan committee to terminate Foster’s representation of the
RTA Plan.
This left Foster with a contractual obligation to represent
the interests of the Pace Plans and no entity paying him to do
so. For a period of time (seventeen months, Foster told us at
oral argument), he continued to represent the Pace Plan
committees without pay. In 2011, Foster filed suit against Pace
and certain Pace employees based on these actions. The parties
settled that suit with a confidential agreement, and the case
No. 14-3203 5
was dismissed in 2012. Six months later, Foster filed suit
against RTA Executive Director Costello and Principal. Foster
raised three claims against Costello and one count against
Principal for tortious interference with prospective economic
advantage. Both defendants moved to dismiss the complaint
and the court granted the motion. Although Principal moved
to dismiss on the grounds that Foster lacked standing to sue
and that he failed to state a claim, the court granted Principal’s
motion on the theory that Foster’s claims against Principal
were “derivative” of his claims against Pace, and that his
settlement with Pace barred his claim against Principal. Foster
subsequently settled his claims with Costello and appeals only
the judgment in favor of Principal. The district court also
denied Foster’s motion to amend his complaint, and Foster
appeals that decision as well.
II.
We review de novo the district court’s decision to dismiss a
claim pursuant to Rule 12(b)(6). Vinson v. Vermilion County, Il.,
776 F.3d 924, 928 (7th Cir. 2015); Ball v. City of Indianapolis,
760 F.3d 636, 642-43 (7th Cir. 2014). Federal Rule of Civil
Procedure 8(a)(2) requires a plaintiff to set forth in the com-
plaint “a short and plain statement of the claim showing that
the pleader is entitled to relief.” A complaint must state a claim
that is plausible on its face. Vinson, 776 F.3d at 928; Ball,
760 F.3d at 643. “Specific facts are not necessary; the statement
need only ‘give the defendant fair notice of what the ... claim
is and the grounds upon which it rests.’” Erickson v. Pardus,
551 U.S. 89, 93 (2007) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007)).
6 No. 14-3203
To state a claim under Illinois law for intentional interfer-
ence with prospective economic advantage “‘a plaintiff must
allege (1) a reasonable expectancy of entering into a valid
business relationship, (2) the defendant's knowledge of the
expectancy, (3) an intentional and unjustified interference by
the defendant that induced or caused a breach or termination
of the expectancy, and (4) damage to the plaintiff resulting
from the defendant's interference.’” Voyles v. Sandia Mortgage
Co., 751 N.E.2d 1126, 1133 (Ill. 2001) (quoting Anderson v.
Vanden Dorpel, 667 N.E.2d 1296, 1299 (Ill. 1996)). Foster’s
Amended Complaint adequately alleged each of those ele-
ments.
In Count IV of the complaint, titled “Tortious Interference
with Prospective Economic Advantage and Attorney-Client
Relationship,” Foster alleged that he had an ongoing attorney-
client relationship with the Pace Plan committees based on the
2003 resolutions of those committees. That relationship began
in the 1980s and Foster reasonably expected his representation
to continue until the Pace Plan committees voted to revoke the
arrangement. Foster also alleged that Principal, as trustee for
the Pace Plans, knew of the arrangement and had in fact been
disbursing Foster’s monthly fees on behalf of the Pace Plans at
the direction of the Pace Plan committees. As trustee, Principal
had a fiduciary duty to follow the terms of the Pace Plan
documents, and those documents required the trustee to follow
the directives of the Plan committees. Instead, Foster asserted,
Principal “intentionally and improperly interfered with
Foster’s representation of the Pace Plans by implementing the
unauthorized instructions of an unidentified Pace employee to
stop paying Foster’s monthly fees on behalf of the Pace Plans.”
No. 14-3203 7
R. 23, ¶ 69. Principal persisted in this course of action even
when Foster produced conclusive proof that the Pace Plan
committees had not authorized the stop-payment order. These
acts of interference, he alleged, resulted in the destruction of
his longstanding attorney-client relationships with the Pace
Plans and their committee members. That, in turn, caused him
to lose income and to suffer damage to his professional
reputation. Under the standards articulated in Voyles, these
allegations adequately state a claim for tortious interference
with prospective economic advantage under Illinois law.
The district court concluded that the claim was nevertheless
barred by the settlement of Foster’s suit against Pace. The court
devoted the vast majority of its Memorandum Opinion and
Order to resolving Foster’s claims against Costello, and
resolved the count against Principal summarily. We repeat the
district court’s analysis of Foster’s claim against Principal in its
entirety:
Finally, the court concludes that Plaintiff’s claim that
Principal tortiously interfered with its prospective
economic advantage and attorney-client relationship
with the Plans is barred by resolution of the Pace
litigation. The only wrongdoing that Plaintiff alleges
Principal committed was “intentionally and improp-
erly interfer[ing] with Foster’s representation of the
Pace Plans by implementing the unauthorized
instructions of an unidentified Pace employee to
stop paying Foster’s monthly fees. …” (Am. Compl.
¶ 69) (emphasis added.) Pace’s instruction to Princi-
pal to stop making monthly payments to Foster for
his representation of the Pace Plans is a function of
8 No. 14-3203
Pace’s decision to terminate Foster’s appointment as
attorney for the Pace Plans. Thus, whether Princi-
pal’s “implementat[ion]” of Pace’s instructions was
tortious depends on whether Pace’s decision to
terminate Foster amounted to retaliation. That issue
was resolved in the Pace litigation, where Plaintiff
alleged, among other claims, that Pace and its
employees wrongfully terminated his representation
of the Plans in retaliation for his report that Pace was
in violation of Illinois law. Indeed, Foster alleged
specifically in that earlier complaint that “Principal
received instructions from Pace to stop paying
Plaintiff’s monthly fees.” See Foster v. Pace Compl.
¶¶ 69-78, 96 (emphasis added). The Pace litigation
was resolved by a confidential settlement agree-
ment. Whatever the terms of that settlement may be,
it put to rest claims against Pace, its employees, and
the RTA. As Plaintiff’s claim against Principal is
derivative of its already litigated claims against
Pace, Plaintiff cannot re-litigate Pace’s liability here
by suing Principal.
Foster v. Costello, 2014 WL 1876247, *11 (N.D. Ill. May 9, 2014)
(emphasis in original).
As is apparent from this passage, the district court labored
under the misimpression that Pace terminated Foster’s repre-
sentation of the Pace Plan committees. The court’s error was
understandable because, as we noted earlier, Foster’s com-
plaint was not a model of clarity. For example, Foster alleged
in the Amended Complaint:
No. 14-3203 9
Pace management was unhappy with Foster’s
demand that it comply with the [sic] section
22-103(c) and retaliated against him by unilaterally
terminating his engagement as counsel to the Pace
Plans in March 2011, disregarding the fact that the
Plans are separate from Pace and no action can be
taken without the participation and support of the
union member(s) of the Pace Plans.
R. 23, ¶ 4. Although the first half of the sentence alleges that
Pace unilaterally terminated Foster, the second half asserts that
it could not take this action without the authorization of the
union committee members. At other times, Foster more clearly
characterized Pace’s actions as attempts to terminate his
representation of the Pace Plan committees. R. 23, at ¶¶ 22, 26.
Reading the Amended Complaint as a whole, accepting
Foster’s allegations as true and drawing all reasonable infer-
ences in his favor, it is apparent that he alleged that Pace
repeatedly attempted to terminate him but lacked the legal
authority to do so. Pace then wrongfully directed Principal to
stop paying Foster, again without the legal authority to do so.
And even though Pace lacked the legal authority to issue the
stop-payment order, and even though Principal was legally
bound to accept orders only from the Plan committees,
Principal enacted Pace’s unlawful directive and stopped
paying Foster, an action that harmed Foster’s attorney-client
relationship with the Pace Plan committees. It is with that
understanding of Foster’s claims that we address the district
court’s determination that Foster’s claim against Principal had
been resolved by his prior litigation against Pace.
10 No. 14-3203
On appeal, Foster contends that his claim against Principal
was not derivative of his earlier claims against Pace. He notes
that the district court cited no legal doctrine underlying its
finding that the claim was barred as “derivative,” and so he
postulates various legal bases on which the court might have
relied, such as res judicata and collateral estoppel. Foster
maintains, and we agree, that the requirements of res judicata
and collateral estoppel cannot be met under the facts presented
here. Indeed, Principal does not attempt to defend the district
court’s rationale that the claim was “derivative” and conceded
at oral argument that neither res judicata nor collateral estoppel
apply in these circumstances. Nor is there any indication that
Principal was somehow released by the terms of Foster’s
confidential settlement agreement with Pace and Pace employ-
ees in the earlier litigation.
Foster also contends, and again we agree, that Principal’s
liability is not discharged under the Illinois Joint Tortfeasor
Contribution Act (“Act”). See 740 ILCS 100/2. That statute
provides:
When a release or covenant not to sue or not to
enforce judgment is given in good faith to one or
more persons liable in tort arising out of the same
injury or the same wrongful death, it does not
discharge any of the other tortfeasors from liability
for the injury or wrongful death unless its terms so
provide but it reduces the recovery on any claim
against the others to the extent of any amount stated
in the release or the covenant, or in the amount of
the consideration actually paid for it, whichever is
greater.
No. 14-3203 11
740 ILCS 100/2(c). This provision reversed the common law
rule that a release of one joint tortfeasor served as a release of
all. Alsup v. Firestone Tire & Rubber Co., 461 N.E.2d 361, 363
(Ill. 1984). As the Illinois Supreme Court noted, the common
law rule was uniformly criticized as harsh, very unfair, and
without any rational basis. Alsup, 461 N.E.2d at 363-64. The
statute was intended to reverse a rule that resulted in the
unintended, perhaps unwitting, release of persons who were
strangers to the release contract. The court therefore read the
statute to mean that tortfeasors, other than the ones who
bargained for the release, must be specifically identified in
order to be released; a general release, even one written in the
broadest possible terms, is ineffective unless a party is specifi-
cally named.
The provision also has the effect of preventing a double
recovery. See Thornton v. Garcini, 928 N.E.2d 804, 813 (Ill. 2009).
A non-settling party may not be required to pay more than its
pro rata share of any shared liability. Id. Foster assured us at
oral argument that he was not fully compensated for his losses
in his settlement with Pace. The remaining amount of damages,
if he is able to prove liability, will be an issue for the fact-
finder. Principal does not assert that it was specifically named
in a release in the Pace litigation. Thus, Principal’s liability is
not discharged under the plain language of the Act. Principal’s
claim that the Act does not apply to intentional tortfeasors is
belied both by the plain language of the Act and the Illinois
Supreme Court’s application of the provision in a case involv-
12 No. 14-3203
ing an intentional tortfeasor.2 Thornton, 928 N.E.2d at 813-14.
We therefore conclude that Foster has stated a claim for
intentional interference with prospective economic advantage
and that his claim is not precluded by his settlement with Pace
and the Pace employees.
The final matter pending is the district court’s denial of
Foster’s motion to amend his complaint. The district court
denied that motion because of its earlier conclusion that the
claim against Principal was derivative of the claims litigated
against Pace and because nothing in the proposed amendments
cured that perceived deficiency. Now that we have determined
that the claim was not derivative, the court should consider
anew Foster’s motion to amend the complaint. For his part,
now that he has settled his claims with Costello, Foster may
wish to refile that motion in order to amend the complaint to
remove the allegations related to Costello and to clarify his
claim against Principal. The judgment is vacated and the case
remanded for further proceedings consistent with this opinion.
VACATED AND REMANDED.
2
Principal’s reliance on Gerill Corp. v. Jack L. Hargrove Builders, Inc.,
538 N.E.2d 530, 540-42 (Ill. 1989), is misplaced. Principal asserts that the
Illinois Supreme Court limited application of the Act to negligent tortfea-
sors, and that the common law rule remains in effect for int ent ional
tortfeasors. Because Foster alleged an intentional tort against Principal, the
company argues that it was released from liability by the settlement with
Pace. But Gerill addressed only subsection (a) of the Act, whether inten-
tional tortfeasors are entitled to contribution under the Act, and did not
address subsection (c) related to releases. The Gerill court’s reasoning was
based on the legislative history of the contribution provision, none of which
applies in the context of releases.