Acosta v. AEU Benefits, LLC et alMEMORANDUMN.D. Ill.June 19, 2019IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION Case No. 17-cv-7931 Judge Joan H. Lefkow MEMORANDUM IN SUPPORT OF LOCKE LORD, LLP’S MOTION TO DISMISS COUNTS VI AND VII OF THIRD-PARTY COMPLAINT OF BLACK WOLF CONSULTING, INC. Edward W. Feldman (6187541) (efeldman@millershakman.com) Diane F. Klotnia (6202609) (dklotnia@millershakman.com) Kay L. Dawson (6312631) (kdawson@millershman.com) Miller Shakman & Beem LLP 180 N. LaSalle Street, Suite 3600 Chicago, Illinois 60601 (312) 263-3700 R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor, Plaintiff, vs. AEU BENEFITS, LLC, et al., Defendants. ____________________________________________ AEU HOLDINGS, LLC, et al., Defendants/Cross Plaintiffs, vs. BLACK WOLF CONSULTING, INC., et al., Defendants/Cross Defendants. ____________________________________________ AEU HOLDINGS, LLC, et al., Defendants/Third-Party Plaintiffs, vs. RODNEY MAYNOR, et al., Third-Party Defendants. ____________________________________________ BLACK WOLF CONSULTING, INC., Defendant and Third-Party Plaintiff, vs. LOCKE LORD, LLP, et al. Third-Party Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 1 of 18 PageID #:5719 TABLE OF CONTENTS Summary ......................................................................................................................................... 1 Background ..................................................................................................................................... 1 The Locke Lord Engagement and “Opinion Letters” ................................................................. 1 Operation of the Programs .......................................................................................................... 3 Argument ........................................................................................................................................ 6 I. PLAINTIFF’S CLAIMS ARE BARRED AND SHOULD BE DISMISSED ..................... 6 A. Locke Lord Is Immune From Liability To Plaintiff, A Non-Client ............................. 6 B. Plaintiff’s Claim For Professional Negligence Is Barred Under Privity Rule .............. 7 C. Alternatively, Plaintiff’s Claims Are Time-Barred ...................................................... 7 II. BLACK WOLF HAS FAILED TO STATE A CLAIM BECAUSE IT CANNOT ESTABLISH CRITICAL ELEMENTS ........................................................... 10 A. Count VI Does Not State A Plausible Claim For Professional Negligence ............... 10 1. Black Wolf was not an intended third-party beneficiary ........................................ 11 2. Locke Lord did not breach any duty ....................................................................... 12 3. Black Wolf has not plausibly alleged that Locke Lord caused its alleged damages ..................................................................................... 13 B. Black Wolf Has Not Alleged A Plausible Claim For Negligent Misrepresentation ....................................................................................... 14 Conclusion .................................................................................................................................... 15 Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 2 of 18 PageID #:5720 Summary Black Wolf Consulting, Inc. (“Black Wolf”) asserts two claims against Locke Lord, LLP (“Locke Lord”) even though Locke Lord never represented Black Wolf: professional negligence (i.e., legal malpractice) (Count VI) and negligent misrepresentation (Count VII). (Dkt. 368) Both arise out of letters that Locke Lord provided to its former clients, ALLInsurance Solutions Management, LLC (“AISM”) in March 2014 and AEU Holdings, LLC (“AEUH”) in December 2016 (“2014 Letter” and “2016 Letter,” respectively, and “LL Letters,” collectively). In each, Locke Lord set forth certain assumptions concerning a proposed “Transaction” and conclusions based on those stated assumptions. In each, Locke Lord made clear who could rely on the LL Letters – its clients (AISM or AEUH), and who could not – everyone else. Black Wolf falls into the “everyone else” category. Its claims fail for several reasons: Texas law, which governs, immunizes lawyers from claims brought by nonclients under its attorney-immunity doctrine; Texas law also bars nonclient claims for legal malpractice under its privity doctrine; If Illinois law applies, the claims are barred by the two-year statute of limitations; In any case, Black Wolf has failed to state a plausible claim for legal malpractice or negligent misrepresentation. Background1 The Locke Lord Engagement and “Opinion Letters” On or about December 20, 2016, Locke Lord issued the 2016 Letter, addressed to “Steven 1 For purposes of this Motion only, Locke Lord assumes the truth of all well-pleaded facts alleged in the Complaint. Locke Lord does not concede negligence in any respect for any purpose. Citations to the Complaint appear as “¶__.” Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 3 of 18 PageID #:5721 2 [sic] Satler” as President of AEUH. ¶27 and Cpt. Ex. 5.2 The 2016 Letter addressed “compliance of the AEU Program with ERISA and its exemption from state insurance regulations.” Id. The 2016 Letter was “virtually identical” to the 2014 Letter that Locke Lord addressed to AISM, AEUH’s predecessor. ¶27. Both LL Letters detail certain assumed facts concerning a proposed “Transaction” that AISM and AEUH, respectively, intended to pursue. Under AISM’s proposed 2014 Transaction, AISM intended to set up a structure that would enable employers who self-fund employee benefit plans to purchase, at a lower cost, stop-loss insurance policies – that is, excess policies in the event of large losses (“Stop-Loss Policy”) – by using individual employer trusts and an off-shore Bermuda Purchasing Trust (“BPT” or “Bermuda Trust”). The BPT would act as an intermediary or conduit for purchasing the insurance and receiving and distributing payments made by the Bermuda insurer on claims made under the Stop-Loss Policy. See 2014 Letter. As discussed below, AISM allegedly did not operate the program in a manner consistent with the 2014 Letter. In or about April 2016, AEUH acquired the program from AISM and later operated the program under a similar, but not identical, structure. ¶20; LL Letters. AEUH retained Locke Lord to advise AEUH on whether the structure of its proposed Transaction would violate certain provisions of ERISA or state insurance codes. 2016 Letter at 1, 6. Based on facts expressly assumed in the 2016 Letter, Locke Lord concluded that (i) the proposed AEUH Transaction should not cause the individual employers or their respective trusts to constitute a multiple employer 2 Plaintiff incorrectly asserts that the 2016 Letter was addressed to Satler “as President of AEUH in its capacity as Plan Administrator of the AEU Plan and Participating Plans.” ¶27. That allegation is contradicted by the letter itself, attached as Complaint Exhibit 5, which shows that it was addressed only to Satler as President of AEUH. The exhibit controls. Massey v. Merrill Lynch & Co., 464 F.3d 642, 645 (7th Cir. 2006). (Plaintiff incorrectly refers to its exhibits as Exhibits 1 and A-D (¶¶27, 42); they are Exhibits 1-5. The 2014 and 2016 Letters are Exs. 2 and 5, respectively, and will be cited herein simply “2014 Letter,” “2016 Letter,” or “LL Letters.”) Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 4 of 18 PageID #:5722 3 welfare arrangement (“MEWA”) or violate ERISA, and (ii) the BPT should be able to purchase the Stop-Loss Policy without causing any employer, its respective trust or the BPT to be deemed to be acting as an unauthorized insurance company. Id. at 6-7. Locke Lord had reached a similar conclusion in the 2014 Letter. See 2014 Letter at 5-7. Both LL Letters list disclaimers. The 2016 Letter identified Locke Lord’s client (only AEUH), who may rely on the Letter (only AEUH), who may not rely on the Letter (anyone other than AEUH), the limits to the scope of its engagement and the 2016 Letter, that its legal conclu- sions assumed the accuracy of the facts stated, that its conclusions could not be relied on and could change if the assumptions were wrong or facts change, and that it undertook no obligation to revise its Letter if relevant law changed. 2016 Letter at 8. The 2014 Letter contained almost identical disclaimers, except the client then was AISM, not AEUH. 2014 Letter at 7.3 Operation of the Programs Black Wolf alleges many ways in which the operation of the AEU Program was contrary to the facts assumed in the LL Letters. Among other things, contrary to those assumed facts: Funds collected to pay one employer’s claims were not segregated, but were instead commingled and used to pay claims for other employers or were not used to pay claims at all, e.g., ¶¶246, 253; “[AEU] Defendants”4 “diverted large portions of those premiums [collected from employer-customers of the AEU Plan] for their own or other improper use,” Cpt. at p. 137; 3 The 2016 Letter is described in further detail in Locke Lord’s memorandum (at 5-8) in support of its motion to dismiss the complaint in No. 18-cv-08158 (“RMI/LL Lawsuit”) (“LL/RMI Mem.”), incorporated herein by reference. The LL/RMI Mem. is filed contemporaneously. 4 Although Plaintiff claims that “Defendants” diverted the sums, based on the totality of the allegations, it is clear that Plaintiff refers to the AEU Defendants only and not to Locke Lord, which is not alleged to have had any involvement in operations. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 5 of 18 PageID #:5723 4 “[M]any employers never even established [VEBA] trusts, and some who did failed to properly document them under applicable regulations,” and failed to apply for or obtain tax-exempt status, and thus “from its inception, the AEU Program failed to meet fundamental requirements necessary to comply with ERISA and be exempt from state insurance regulations,” ¶33; Veritas, an “aggregator” for the AEU Program (¶61), failed to send appropriate funds to the AEU Plan Administrator, “resulting in millions of dollars of unpaid claims from March 2015 to November 2016,” ¶¶61, 69; “[B]efore March 2016,” Veritas used funds collected by Black Wolf from one set of employer groups to pay claims of another set of employer groups, ¶¶70-71; In October and November 2015, Tall Tree, a third-party administrator (“TPA”), failed to accept information from Black Wolf, resulting in (i) “COBRA not being applied to individuals who had terminated the AEU Plan,” and (ii) “newly joined people and their dependents not being added” to their plan, ¶88; and Black Wolf knew of delays in processing claims, inaccurate accounting, and complaints from members, which resulted in Black Wolf traveling to Salt Lake City “to try to resolve these pervasive issues” in January 2016, but its “attempt to do so was ignored,” ¶101. Black Wolf became aware of serious mismanagement/misuse of funds and unpaid claims more than two years before it sued Locke Lord (on May 1, 2019). Among other things: Tall Tree “blamed” Black Wolf for unpaid claims, which resulted in Black Wolf’s counsel “demanding” in November 2016 that “Tall Tree immediately cease its systemic campaign of defamatory statements,” ¶¶102-03; Black Wolf’s “mounting suspicion that Veritas, the AEU Plan Administrator, or both were not sending the appropriate funds to the captive [offshore insurer] continued to grow during Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 6 of 18 PageID #:5724 5 2016,” ¶108 (here, and, unless otherwise indicated, later, all italics within quoted passages are added); Black Wolf’s president met with AEU in September 2016 “to address his concerns regarding Veritas’ misappropriation of funds and the thousands of unpaid claims,” ¶109; Two weeks later, AEUH admitted that Veritas transferred to AEUH about $10-14 million less than what Black Wolf had transferred to Veritas, ¶¶111-15; AEUH induced Black Wolf to remain involved in the AEU Program by offering Black Wolf the opportunity to replace Veritas, ¶117; As a condition of its acceptance, Black Wolf required that a new trust (BPT2) be set up to “remediate the issue of unpaid claims,” and believed that Veritas had been excluded from the AEU Program as of December 2016, ¶¶118-20; Because of Veritas’ mismanagement, “Black Wolf was cautious to ensure that moving forward, claims would be paid out appropriately,” insisting on the creation of a new trust (BPT2), with all of Black Wolf’s customers and related funds to be moved from BPT1 to BPT2, and Veritas to remain responsible only for BPT1, ¶¶121-125; AEUH “used the new premiums collected by Black Wolf intended to pay BPT 2 claims to pay older claims that remained unpaid in BPT 1,” ¶136; Although Black Wolf wired more than sufficient funds to pay Black Wolf’s BPT2 claims, “in early 2017,” Benefit Plan Administrators, Inc. (“BPA”), a claims administrator, “claimed that it could not pay the claims of Black Wolf’s employer groups because it had not received sufficient funding,” ¶¶132-33; “On or about February 2017, two months after they became Black Wolf’s new TPA, BPA complained that its fees were not being paid by AEU,” ¶157; and Black Wolf learned “of AEU’s scheme to transfer funds from BPT2 to BPT1” when “Black Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 7 of 18 PageID #:5725 6 Wolf began receiving complaints from clients regarding unpaid BPT2 claims,” ¶141. Although Black Wolf does not allege when it began receiving complaints from participants about unpaid claims and when it learned that claims were not being paid (¶¶132-41), it admitted in its answer to the DOL’s First Amended Complaint ¶¶182-83 (Dkt. 368) (“BW Ans.”), that it learned of those matters in April and March 2017, respectively. Black Wolf does not allege that Locke Lord was made aware of any of these alleged operational problems. In addition, Black Wolf incurred damages, again more than two years before filing its claims against Locke Lord, as a result of the foregoing. For example (¶¶106-07), 106. As a result of Tall Tree’s inability to process claims and maintain accurate eligibility information and its refusal to work in a collaborative manner, Black Wolf incurred significant additional costs. 107. The failures of Tall Tree resulted in the exposure of Black Wolf to adverse publicity, loss of confidence in the health and welfare benefits marketplace, and loss of market share, including loss of future premiums. Argument I. PLAINTIFF’S CLAIMS ARE BARRED AND SHOULD BE DISMISSED Black Wolf’s claims are barred for three reasons: (i) under Texas law, lawyers are immune from liability to nonclients for any claims arising out of their legal representation; (ii) under Texas law, nonclient third parties may not assert claims for legal malpractice, and (iii) under Texas or Illinois law, Black Wolf’s claims are barred by two-year statutes of limitations.5 A. Locke Lord is Immune From Liability to Plaintiff, a Non-Client. Attorney immunity is a “comprehensive affirmative defense protecting attorneys from 5 Texas law governs for the reasons discussed in the LL/RMI Mem. at 10 n.4. Among other things, Black Wolf’s claims arise out of the LL Letters. Both were issued by Locke Lord, who Black Wolf alleges has its principal place of business in Texas, and the 2016 Letter was sent to AEUH, also located in Texas. Id. However, even if Illinois law applied, the claims should be dismissed for reasons discussed below. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 8 of 18 PageID #:5726 7 liability to non-clients” under Texas law. Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015). It protects an attorney where the “alleged conduct was within the scope of . . . legal representation,” id. at 484, and is “broad” in application. Troice v. Greenberg Traurig, L.L.P., 921 F.3d 501, 506 (5th Cir. 2019). The defense applies to both litigation and non-litigation contexts, regardless of the legal theory on which the claim is based “so long as the attorney was acting within the scope of representation.” Id. at 505-07 (holding immunity may apply even to fraud and criminal claims where claim is based on lawyer’s legal services). The defense is intended “to promote loyal, faithful, and aggressive representation in a comprehensive manner.” Id. at 506 (internal citations omitted). Its underlying rationale is to free attorneys “to practice their profession” and “advise their clients . . . without making themselves liable for damages.” Id. (quoting Cantey, 467 S.W.3d at 481). Here, there can be no dispute that Black Wolf was not Locke Lord’s client and that Black Wolf seeks to hold Locke Lord liable for services that it provided in the scope of its representation of AISM in 2014 and AEUH in 2016. Black Wolf claims that it was an “intended third-party beneficiary” of those services (¶239), but does not claim it was Locke Lord’s client. Accordingly, the Texas attorney-immunity doctrine bars both Counts VI and VII. B. Plaintiff’s Claim for Professional Negligence is Barred Under Privity Rule. Apart from immunity, under Texas law a “bright-line privity” rule prohibits nonclients from suing lawyers for professional negligence. See, e.g., Barcelo v. Elliot, 923 S.W. 2d 575, 578 (Tex. 1996). This is true even where, as here, the nonclient claims to have been an intended third- party beneficiary of the attorney-client relationship. Id. For this additional reason, Black Wolf’s claim for professional negligence (Count VI) is barred. C. Alternatively, Plaintiff’s Claims Are Time-Barred. Even if Illinois law applied, Black Wolf’s claims are barred under the two-year statute of Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 9 of 18 PageID #:5727 8 limitations that governs claims against lawyers. 735 ILCS 5/13-214.3(b): An action for damages based on tort, contract, or otherwise (i) against an attorney arising out of an act or omission in the performance of professional services . . . must be commenced within 2 years from the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought. So long as the claim arises out of the provision of legal services, the two-year limitations period applies regardless of the legal theory or whether the claim is brought by a client or a nonclient. See Evanston Ins. Co. v. Riseborough, 2014 IL 114271, ¶23 (holding 2-year limitations applied to third-party claims against lawyers); 800 South Wells Commercial, LLC v. Horwood Marcus & Berk Chartered, 2013 IL App (1st) 123660, ¶13 (holding §13-214.3(b) governs “all claims against an attorney arising out of acts or omissions in the performance of professional services, and not just legal malpractice claims or claims brought against an attorney by a client”). The “discovery” rule applies. Thus, the two-year period begins when the plaintiff knows or reasonably should have known that it has been injured and that its injury was wrongfully caused, even if the plaintiff does not have “actual knowledge” of (i) the lawyer’s negligent conduct, (ii) which specific defendant caused its injury, or (ii) if the plaintiff has any cause of action. SK Partners I, LP v. Metro Consultants, Inc., 408 Ill. App. 3d 127, 130 (2011); Castello v. Kalis, 352 Ill. App. 3d 736, 744 (1st Dist. 2004). Rather, the statute begins to run “when the purportedly injured party ‘has a reasonable belief that the injury was caused by wrongful conduct, thereby creating an obligation to inquire further on that issue.’” Carlson v. Fish, 2015 IL App (1st) 140526, ¶23 (affirming dismissal on grounds that claim was time-barred) (quoting Dancor International, Ltd. v. Friedman, Goldberg & Mintz, 288 Ill. App. 3d 666, 673 (1st Dist. 1997)). “The law is well settled that once a party knows or reasonably should know both of his injury and that it was wrongfully caused, ‘the burden is upon the injured person to inquire further as to the existence of a cause of action.’” Id., ¶23 (internal citation omitted). A plaintiff has been injured when plaintiff Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 10 of 18 PageID #:5728 9 “has suffered a loss for which he may seek monetary damages.” N. Ill. Emergency Physicians v. Landau, Omahana & Kopka, Ltd., 216 Ill. 2d 294, 306 (2005). Here, Black Wolf’s own allegations make clear that it reasonably knew or should have known before May 1, 2017 – that is, more than two years before it filed its claims against Locke Lord – that it had been injured and that its alleged injury had been wrongfully caused. That triggered a duty to inquire and the start of the two-year limitations period for both its claims. Specifically, Black Wolf alleges that Locke Lord is liable if the DOL is correct that the AEU Program violated ERISA laws and regulations and operated as an improper MEWA because that conclusion, according to Black Wolf, is contrary to the LL Letters. But, throughout its Complaint, Black Wolf alleges numerous facts that show that, prior to May 1, 2017, Black Wolf was aware both that the AEU Program was mismanaged and operated in a manner inconsistent with the assumptions stated in both LL Letters and that those operations had injured Black Wolf. See above at 3-6. Notwithstanding its “mounting suspicion” in 2016 and before that funds it collected to pay its employer claims were not being used to pay those claims, Black Wolf did not sue anyone. Rather, it not only continued to participate in the program, it increased its role while leaving Veritas in place, see, e.g., ¶¶117-18, 124, 130, and while, as Black Wolf admits, its principal pocketed over $3.3 million in 2016-17. See BW Ans., ¶¶196-97. Moreover, as discussed above at 6, Black Wolf also alleges that it knew well before May 1, 2017 that the operations of the AEU Program not only exposed Black Wolf to liability but had caused Black Wolf damages that it now seeks to recover in this case, including incurring expenses to “remedy” the problems created by the improper operation of the AEU Program. Thus, based on Black Wolf’s own allegations, it knew or reasonably should have known before May 1, 2017 that it had been injured as a result of wrongful conduct and that it had incurred actual alleged losses, even if it did not know which defendant had actually caused the alleged Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 11 of 18 PageID #:5729 10 injury, or of Locke Lord’s alleged negligence specifically, or what causes of action it may have. Because Black Wolf did not sue Locke Lord until more than two years later, on May 1, 2019, its claims are time-barred under Illinois law. The same is true under Texas law.6 II. BLACK WOLF HAS FAILED TO STATE A CLAIM BECAUSE IT CANNOT ESTABLISH CRITICAL ELEMENTS The standards for deciding a Rule 12(b)(6) motion are set forth at LL/RMI Mem. at 9. Black Wolf’s allegations fail to state a facially plausible claim under these standards. A. Count VI Does Not State A Plausible Claim For Professional Negligence. Black Wolf asserts a claim for professional negligence solely in its purported capacity as an intended third-party beneficiary of the attorney-client relationship between Locke Lord and either AISM or AEUH. ¶239. As discussed above, because Texas law bars such claims by nonclients, the Court need not reach this issue unless it concludes that Illinois law applies. If so, the claim should be dismissed. Black Wolf’s own allegations and exhibits make clear that it has not pleaded and cannot establish critical elements of its claim. Specifically, (i) Black Wolf was not an intended third-party beneficiary of the attorney-client relationship between Locke Lord and either AISM or AEUH; (ii) Locke Lord did not breach any duty, and (iii) Locke Lord’s 6 Although Texas’ statutes of limitation are not relevant in light of the attorney-immunity and privity doctrines, the limitations period under Texas law for both legal malpractice and negligent misrepresentation claims is also two years. See, e.g., Young v. Dwayne R. Day, P.C., 2018 WL 1473931, at *5 (Tex. App. Mar. 27, 2018), review denied (Dec. 14, 2018); Weaver & Tidwell, L.L.P. v. Guarantee Co. of N. Am. USA, 427 S.W.3d 559, 565 (Tex. App. 2014). And, like Illinois, Texas law applies a discovery rule to malpractice claims. For negligent misrepresentation claims, Texas law is unsettled as to whether the two-year limitations period begins from the date of the alleged misrepresentation, or from the date when Black Wolf knew or reasonably should have known that it had been wrongfully injured. See Abbott-Pope v. Texas Recovery Bureau, Inc., 2017 WL 9250305, at *3 (E.D. Tex. Feb. 2, 2017) (holding Texas does not generally apply the discovery rule to negligent misrepresentation claims); but see McGowan v. Ditech Fin., LLC, 2018 WL 4346722, at *4 (N.D. Tex. Aug, 24 2018) (leaving open possibility of applying discovery rule to negligent misrepresentation claim). In either case, the result is the same. The dates of Locke Lord’s alleged misrepresentations were the dates of its two letters – March 3, 2014 and December 20, 2016, both well before May 1, 2017. And, in any event, Black Wolf knew or reasonably should have known that it had been injured as a result of allegedly wrongful conduct before May 1, 2017. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 12 of 18 PageID #:5730 11 alleged negligence did not cause Black Wolf’s alleged damages. Each element is necessary for Black Wolf to state a claim for professional negligence. See In re Estate of Powell, 2014 IL 115997, ¶13. Each is absent here, requiring dismissal of Count VI. 1. Black Wolf was not an intended third-party beneficiary. Under Illinois law, lawyers generally do not owe any duties to nonclients. Powell, 2014 IL 115997, ¶14 (“an attorney is liable only to his client, not to third persons”). Nonclients may have claims only in very narrow circumstances: “[T]o establish a duty owed by the defendant attorney to the nonclient the nonclient must allege and prove that the intent of the client to benefit the nonclient third party was the primary or direct purpose of the transaction or relationship.” Pelham v. Griesheimer, 92 Ill.2d 13, 20-21 (1982). The key is whether the attorney was acting at the direction of or on behalf of the client to benefit or influence a third party. Id. See also Geaslen v. Berkson, Gorov & Levin, Ltd., 220 Ill. App. 3d 600, 605-06 (1st Dist. 1991), aff’d in part and rev’d in part on other grounds, 155 Ill. 2d 223 (1993). Black Wolf was not a client of Locke Lord. Thus, Count VI hinges on its purported status as an intended third-party beneficiary of Locke Lord’s relationship with its clients, AISM and AEUH, and thus of the advice set forth in the LL Letters. Black Wolf’s allegations fail to establish that it was an intended third-party beneficiary under the Pelham primary-purpose test. Here, the primary purpose of the LL Letters was to benefit Locke Lord’s clients, AISM and AEUH, not third-parties who might participate in the program that its clients were to create. That is confirmed by the Letters themselves; Black Wolf does not allege otherwise. In each, Locke Lord identified its client (AISM and AEUH, respectively) and provided guidance to its identified client as to whether its proposed Transaction would comply with (or run afoul of) certain ERISA regulations and state insurance law requirements. Neither Letter suggests that Locke Lord undertook a duty to any other individuals or entities. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 13 of 18 PageID #:5731 12 Black Wolf also does not allege, even in a conclusory fashion, that the primary intent of AISM or AEUH regarding the 2014 and 2016 Letters was to benefit or influence Black Wolf, or that Locke Lord intended or knew that Black Wolf received or would rely on the Letters. To the contrary, Locke Lord averred that no one, other than its client, was entitled to rely on the Letters. Black Wolf alleges that Locke Lord sent the 2014 and 2016 Letters to AISM and AEUH “for further distribution to third-parties such as Black Wolf.” ¶238. But the express language of the Letters contradicts this allegation: This letter is being rendered only to our client, AEU[H], and may not be used or relied upon by, or distributed to, any other person or entity for any purpose whatsoever without the written permission of Locke Lord; provided, that AEU[H] may provide a copy of this letter (but without any reliance hereon) to [certain third parties, including “the TPA,” and “any Employer Aggregator”]. 2016 Letter at 8; see also 2014 Letter at 8.7 The LL Letters could not have been clearer: only its client (AISM/AEUH) and no other person – even those with whom AISM/AEUH could share the Letters – could rely on the Letters without the express written permission of Locke Lord. No such permission is alleged. That is dispositive. See Massey v. Merrill Lynch & Co., 464 F.3d 642, 645, 650 (7th Cir. 2006) (dismissing claims for fraud and breach of fiduciary duty based on alleged misrepresentations in defendant’s fairness opinion where opinion attached to complaint stated it was issued solely for benefit of corporate board and not investors). See also McCamish, Martin, Brown & Loefler v. F.E. Appling Interests, 991 S.W.2d 787, 794 (Tex. 1999) (lawyer can properly limit liability to nonclients by setting forth “limitations as to whom the representation is directed and who should rely on it”). 2. Locke Lord did not breach any duty. Breach of duty is an essential element to a claim for professional negligence. In its BW 7 The 2014 Letter contained substantively identical language, except that it identified the sole party that was entitled to rely on the letter as its then client, AISM. 2014 Letter at 8-9. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 14 of 18 PageID #:5732 13 Ans. (¶5), Black Wolf alleges that Locke Lord “correct[ly]” advised in both LL Letters that the proposed program would not constitute a MEWA. And, for the reasons discussed in LL/RMI Mem. at 18-19, Locke Lord was right. Indeed, as Black Wolf implicitly acknowledges, the issue was not Locke Lord’s advice but the fact that AEUH and others operated the program contrary to the assumptions stated in the LL Letters. See, e.g., ¶¶251-54, 259-60. For this reason, Locke Lord did not breach any duty and Black Wolf has no claim against it. To avoid dismissal, Black Wolf alleges alternatively that if the “AEU Program” violated ERISA, as the DOL contends, then RMI must be correct that Locke Lord breached its duty because its conclusions were wrong under the facts assumed or because it failed to investigate the true facts. To support its alternative theory, Black Wolf relies on RMI’s allegations set forth in its complaint against Locke Lord in the RMI/LL Lawsuit. ¶¶249-64. But, contrary to Black Wolf’s adopted allegations, Locke Lord did not breach any duty, as shown in the LL/RMI Mem. at 16-23. Count VI accordingly fails. 3. Black Wolf has not plausibly alleged that Locke Lord caused its alleged damages. For the reasons discussed in LL/RMI Mem. at 23-27, Black Wolf also has not alleged facts (and cannot do so) establishing that Locke Lord caused Black Wolf any injury, even if it owed and breached any duty to Black Wolf, which it did not. Black Wolf’s claim that Locke Lord caused it injury is based entirely on its allegation that it relied on the LL Letters to its detriment. See, e.g., ¶248. But, even if Black Wolf relied on the LL Letters, such reliance was unreasonable, as discussed above, in light of the express disclaimers warning that no one, other than Locke Lord’s client, was entitled to rely on them. It was especially unreasonable in light of the disclaimer that the opinions could not be relied upon even by Locke Lord’s clients if the assumptions were incorrect. Black Wolf admits that it knew facts contradicting the assumptions in the Letters. For this reason and for the reasons stated in the LL/RMI Mem., Black Wolf cannot plead causation. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 15 of 18 PageID #:5733 14 B. Black Wolf Has Not Alleged A Plausible Claim For Negligent Misrepresentation. As shown, the Texas attorney-immunity doctrine bars nonclient claims against lawyers arising out of their legal services. Accordingly, the Court need not address the sufficiency of Count VII unless it concludes that (1) Illinois law applies and (2) the claim is not time-barred. If it does, the Court should dismiss Count VII because critical elements are missing or contradicted. Under Illinois law (and Texas law), the elements for negligent misrepresentation are: (1) a false statement of material fact; (2) carelessness or negligence in ascertaining the truth of the statement by the party making it; (3) an intention to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; (5) damage to the other party resulting from such reliance; and (6) a duty on the party making the statement to communicate accurate information. Auto-Owners Ins. Co. v. Konow, 2016 IL App (2d) 150823, ¶7, quoting First Midwest Bank, N.A. v. Stewart Title Guaranty Co., 218 Ill.2d 326, 334–35, 300 (2006); accord Blankinship v. Brown, 399 S.W.3d 303, 308-10 (Tex. App. 2013). Reliance must be both actual and justifiable. See Cahill v. E. Ben. Sys., Inc., 236 Ill. App. 3d 517, 521 (1st Dist. 1992); Quinn v. McGraw-Hill Companies, Inc., 168 F.3d 331, 335 (7th Cir. 1999). Like Count VI, Count VII rests entirely on RMI’s allegations in the RMI/LL Complaint. ¶¶268-72 (alleging that if RMI’s “described assertions … are true” then Black Wolf has a claim for negligent misrepresentation). For the reasons discussed in the LL/RMI Mem. at 27-31, those allegations fail to state a claim for negligent misrepresentation. Black Wolf’s additional allegations do not salvage the claim because it cannot plausibly allege, among other things, both that Locke Lord intended that Black Wolf rely on its Letters and that Black Wolf actually and justifiably relied on them. Its allegations not only fall short, they defeat the claim. First, the LL Letters declare that no third party could rely on them without express written permission from Locke Lord, and none is alleged. Nor does Black Wolf allege that Locke Lord intended to induce Black Wolf to rely on the Letters. Rather, it alleges only that Locke Lord Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 16 of 18 PageID #:5734 15 knew and intended that “AEU Holdings and AEU Benefits would distribute the Opinion Letters to third parties such as Black Wolf.” ¶270. Even if true, Locke Lord also made clear that the recipients of the LL Letters were not entitled to rely on them. 2014 Letter at 8; 2016 Letter at 8. Second, Black Wolf’s alleged reliance on the LL Letters, even if true, was not justifiable in light of the Letters’ disclaimers that no third party could rely on them. Also, as Black Wolf alleges, before December 2016, it was well aware of the many problems with the operation of the AEU Program, including that funds it provided to cover claims of its employers were not being used to pay those claims. That is at least one of the reasons that Black Wolf “insisted” on the creation of BPT2. ¶¶120-21. Black Wolf cannot allege that it relied justifiably on Locke Lord’s conclusions when it knew that the program was operated in a manner inconsistent with fundamental assumptions on which those conclusions were based. See above at 27-31.8 Conclusion For the above reasons, the Court should dismiss the Complaint with prejudice. Dated: June 19, 2019 Respectfully submitted, LOCKE LORD, LLP By: /s/ Edward W. Feldman One of its attorneys 8 Black Wolf alleges that Locke Lord provided AEUH with two unsigned drafts of the 2016 Letter. ¶27. It is not clear if Black Wolf claims that it received copies of the drafts. Compare Cpt. (Summary of Claims) at pp.136-37 with ¶27. But, even if it did, that fact would not save Black Wolf’s claims. Both drafts make clear that Locke Lord’s conclusions depended on the accuracy of the facts that it assumed, and contain virtually identical disclaimers as the final 2016 Letter, making clear that Locke Lord’s only client was AEUH and that no third party should or could rely on the 2016 Letter. See Cpt. Exs. 3 and 4. Moreover, one cannot justifiably rely on an unsigned, draft. Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 17 of 18 PageID #:5735 Certificate of Service The undersigned attorney hereby certifies that on June 19, 2019, he caused the foregoing Memorandum In Support Of Locke Lord, LLP’s Motion To Dismiss Counts VI And VII Of Third-Party Complaint Of Black Wolf Consulting, Inc. to be filed with the Clerk of the Court for the Northern District of Illinois, Eastern Division, using the Court’s CM/ECF system which shall notify all counsel of record. /s/ Edward W. Feldman Case: 1:17-cv-07931 Document #: 399 Filed: 06/19/19 Page 18 of 18 PageID #:5736