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Tronsgard v. FBL Financial Group, Inc.

United States District Court, D. Kansas

April 25, 2018

STEVE TRONSGARD & MEDBOR CHAVEZ, individually and on behalf of all others similarly situated, Plaintiffs,
v.
FBL FINANCIAL GROUP, INC., et al., Defendants.

          MEMORANDUM AND ORDER

          Daniel D. Crabtree, United States District Judge.

         Plaintiffs Steve Tronsgard and Medbor Chavez are former insurance agents for defendants-a group of entities that plaintiffs call “the Farm Bureau family of companies.” Doc. 41 at 12. The four defendants named in plaintiffs' Complaint are: (1) FBL Financial Group, Inc. (“FBL Financial”); (2) Farm Bureau Property & Casualty Insurance Co. (“FBP&C”); (3) Farm Bureau Life Insurance (“FB Life”); and (4) Western Agricultural Insurance Company (“WAIC”). Plaintiffs allege that defendants improperly classified them during their employment as independent contractors instead of employees. And plaintiffs, both individually and on behalf of all others similarly situated, bring this lawsuit asserting claims arising from defendants' alleged misclassification.

         Defendants have responded to the lawsuit by filing a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6), asserting that plaintiffs' First Amended Class Action Complaint fails to state a claim for relief. Doc. 31. Plaintiffs filed an Opposition to that motion. Doc. 41. And defendants submitted a Reply. Doc. 54. After the briefing closed, the court granted plaintiffs' motion to file a surreply and also permitted defendant to file a sur-surreply. Doc. 59. On January 23, 2018, plaintiffs filed their Surreply. Doc. 60. And on January 31, 2018, defendants filed their Sur-surreply. Doc. 62. The matter, to say the least, is fully briefed, and the court is prepared to rule. After considering the arguments and authorities presented in the parties' papers, [1] the court grants defendants' Motion to Dismiss in part and denies it in part. The court explains why below.

         I. Factual Background

         The following facts are taken from plaintiffs' First Amended Class Action Complaint (“Complaint”). Doc. 23. The court accepts the facts asserted in the Complaint as true and views them in the light most favorable to plaintiffs. Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013) (citing Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)).

         From 2003 to 2014, plaintiff Steve Tronsgard worked as a Farm Bureau insurance agent in Kansas. From 2014 to 2016, plaintiff Medbor Chavez worked as a Farm Bureau insurance agent in Kansas. Both plaintiffs signed an Agent Contract that classified them as independent contractors, not employees. But, in reality, defendants retained the right to control the manner, method, and means of virtually every facet of their insurance agents' work. Defendants did so by imposing various regulations, policies, and procedures that governed all its insurance agents. Thus, plaintiffs contend, defendants misclassified plaintiffs and other similarly situated insurance agents as independent contractors. And through this practice of misclassification, plaintiffs allege, defendants shirked their legal obligations to provide health, retirement, and other benefits to its insurance agents while reaping the economic benefits of its captive workforce.

         Plaintiffs' Complaint asserts that defendants' misclassification gives rise to six causes of action: (1) Racketeer Influenced and Corrupt Organization Act (“RICO”) violations under 18 U.S.C. §§ 1341, 1343, 1962(c); (2) Employee Retirement Income Security Act (“ERISA”) violations under 29 U.S.C. § 1132(a)(1)(B); (3) Kansas Wage Payment Act (“KWPA”) violations under Kan. Stat. Ann. §§ 44-313 et seq.; (4) quantum meruit/rescission; (5) unjust enrichment; and (6) declaratory relief. Defendants assert that none of these claims states a plausible cause of action. Defendants thus ask the court to dismiss plaintiffs' Complaint under Rule 12(b)(6). The court considers defendants' request below.

         II. Legal Standard

         Fed. R. Civ. P. 8(a)(2) provides that a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Although this Rule “does not require ‘detailed factual allegations, '” it demands more than “[a] pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action'” which, as the Supreme Court explained simply, “will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         For a complaint to survive a motion to dismiss under Rule 12(b)(6), the pleading “must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'” Iqbal, 556 U.S. at 679 (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556); see also Christy Sports, LLC v. Deer Valley Resort Co., Ltd., 555 F.3d 1188, 1192 (10th Cir. 2009) (“The question is whether, if the allegations are true, it is plausible and not merely possible that the plaintiff is entitled to relief under the relevant law.” (citation omitted)).

         When considering whether a plaintiff has stated a plausible claim, the court must assume that the complaint's factual allegations are true. Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). But, the court is “‘not bound to accept as true a legal conclusion couched as a factual allegation.'” Id. (quoting Twombly, 550 U.S. at 555). “‘Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice'” to state a claim for relief. Bixler v. Foster, 596 F.3d 751, 756 (10th Cir. 2010) (quoting Iqbal, 556 U.S. at 678). Also, the complaint's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citations omitted).

         When evaluating a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the court “may consider not only the complaint itself, but also attached exhibits and documents incorporated into the complaint by reference.” Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). A court “may consider documents referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity.” Id. (quoting Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007)).

         When deciding the motion to dismiss here, the court considers plaintiff Tronsgard's January 1, 2013 Farm Bureau Property & Casualty Insurance Company/Western Agricultural Insurance Company Agent Contract (“Agent Contract”) (Doc. 23-1). It does so because plaintiffs refer to the Agent Contract in their Complaint, and they have attached it to the Complaint as an exhibit. See Doc. 23 ¶¶ 43-45, 53, 57-58, 79, 118-24; Doc. 23-1 (the Agent Contract). The Agent Contract also is central to plaintiffs' claims, specifically plaintiffs' RICO claim (see Doc. 23 ¶¶ 118-24). The parties do not dispute its authenticity. For all these reasons, the court considers the Agent Contract when deciding defendants' Motion to Dismiss under Rule 12(b)(6).

         III. Analysis

         Defendants ask the court to dismiss plaintiff's claims for four reasons. First, defendants argue that the statute of limitations bars each of plaintiff Tronsgard's claims. Second, defendants assert that plaintiffs' ERISA claims fail as a matter of law because plaintiffs have not pleaded exhaustion of administrative remedies. Third, defendants contend that plaintiffs' Complaint fails to state a plausible RICO claim. Finally, defendants argue, plaintiffs' Complaint fails to state a plausible claim for quantum meruit/rescission.[2] The court addresses each argument, below. The court begins with the RICO claim.

         A. Have Plaintiffs Stated a Plausible RICO Claim?

         Defendants assert that plaintiffs' Complaint fails to state a violation of RICO. Subsection 1962(c) of RICO makes it:

unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c). Subsection 1962(d) makes it “unlawful for any person to conspire to violate” subsection 1962(c). Id. § 1962(d). RICO provides a private civil cause of action for those who are injured by violations of § 1962 and allows recovery of treble damages, costs, and attorney fees. Id. § 1964(c).

         When addressing plaintiffs' RICO claim below, the court is mindful that “RICO is to be read broadly.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 497 (1985). “To successfully state a RICO claim, a plaintiff must allege four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002) (citations and internal quotation marks omitted). Defendants argue that plaintiffs' RICO claim falls short of these elements for several reasons: (1) plaintiffs fail to allege a sufficient predicate act; (2) plaintiffs have not alleged a RICO enterprise; (3) plaintiffs have not alleged sufficiently that the members of the enterprise associated together for a common fraudulent purpose; and (4) plaintiffs have not alleged sufficiently defendants' participation in the conduct of the alleged enterprise.

         The court agrees that plaintiffs' Complaint fails to state a plausible RICO claim for at least three of these reasons. Each one of the three provides an independent basis for the court to dismiss plaintiffs' RICO claim under Rule 12(b)(6).[3] The court addresses each reason in the following subsections.

         1. Plaintiffs' Complaint fails to allege facts capable of supporting a finding or inference that defendants committed a RICO predicate act.

         Defendants assert that plaintiffs' Complaint fails to allege a predicate act capable of supporting a plausible RICO claim.

         “‘RICO is founded on the concept of racketeering activity.'” Safe Streets All. v. Hickenlooper, 859 F.3d 865, 882 (10th Cir. 2017) (quoting RJR Nabisco, Inc. v. European Cmty., 136 S.Ct. 2090, 2096 (2016)). “The statute defines ‘racketeering activity' to encompass dozens of state and federal offenses, known in RICO parlance as predicates.” Id. (quoting RJR, 136 S.Ct. at 2097). “‘These predicates include any act “indictable” under specified federal statutes . . . . '” Id. (quoting RJR, 136 S.Ct. at 2096 (quoting 18 U.S.C. § 1961(1))). Such acts include those “indictable” under 18 U.S.C. “section 1341 (relating to mail fraud)” and “section 1343 (relating to wire fraud).” 18 U.S.C. § 1961(1)(B).

         Here, plaintiffs' Complaint alleges that defendants engaged in a pattern of racketeering activity involving mail fraud and wire fraud. Doc. 23 ¶¶ 9, 117, 138. “To support the mail and wire fraud allegations, the plaintiffs must plausibly allege ‘the existence of a scheme or artifice to defraud or obtain money or property by false pretenses, representations or promises, ' and that [defendants] communicated, or caused communications to occur, through the U.S. mail or interstate wires to execute that fraudulent scheme.” George v. Urban Settlement Servs., 833 F.3d 1242, 1254 (10th Cir. 2016) (quoting Tal, 453 F.3d at 1263). “And because Fed.R.Civ.P. 9(b) requires a plaintiff to plead mail and wire fraud with particularity, the plaintiffs must ‘set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.'” Id. (quoting Koch v. Koch Indus., Inc., 203 F.3d 1202, 1236 (10th Cir. 2000)).

         Defendants assert that plaintiffs' Complaint fails to allege facts supporting a requisite RICO predicate act-i.e., mail fraud or wire fraud-because the alleged fraudulent statements did not involve misrepresentations of fact. Instead, defendants contend, the alleged misrepresentations are defendants' statements to plaintiffs that they would work as independent contractors, not employees. Defendants assert that these alleged misrepresentations are statements of law-not fact-and thus not actionable to support a RICO predicate act.

         For support, defendants cite cases outside the Tenth Circuit that have rejected misrepresentation claims arising from a defendant's classification of the plaintiff as an independent contractor. See, e.g., Miller v. Yokohama Tire Corp., 358 F.3d 616, 620-21 (9th Cir. 2004) (affirming Rule 12(b)(6) dismissal of plaintiff's RICO claim based on defendant's alleged failure to pay plaintiff overtime because defendant's alleged misrepresentations-i.e., that plaintiff was not entitled to overtime-were misrepresentations of the law and not actionable fraud necessary to support the predicate acts of mail and wire fraud); Bernal v. FedEx Ground Package Sys., Inc., No. 15-01448, 2015 WL 4273034, at *3 (C.D. Cal. July 14, 2015) (holding that plaintiffs' fraud claims failed to state a claim under Rule 12(b)(6) because the alleged misrepresentations-i.e., that plaintiffs were independent contractors employed by FedEx-were misrepresentations of the law and not ones of fact); Debnam v. FedEx Home Delivery, No. 10-11025, 2011 WL 1188437, at *2 (D. Mass. Mar. 31, 2011) (dismissing plaintiff's misrepresentation and fraud claims because the “sole” misrepresentation allegation was that defendant mischaracterized plaintiff “as an independent contractor, rather than as an employee” and that “characterization of the relationship is not a statement of ‘fact' but rather an assertion of a legal conclusion” that could not support plaintiff's claims as a matter of law).

         Also, defendants explain, “the Tenth Circuit looks to state common law” “[t]o determine what constitutes [mail and wire] fraud under Sections 1341 and 1343.” Shepard v. DineEquity, Inc., No. 08-2416-KHV, 2009 WL 8518288, at *6 (D. Kan. Sept. 25, 2009) (citing BancOklahoma Mortg. Corp. v. Capital Title Co., Inc., 194 F.3d 1089, 1103 (10th Cir. 1999) (applying Missouri fraud elements to determine whether defendants violated Sections 1341 and 1343)). And, defendants say, common law fraud in Kansas requires “false representations made as statements of existing and material fact.” Id. (citing Kelly v. VinZant, 197 P.3d 803, 808 (Kan. 2008)) (emphasis added).

         Plaintiffs respond that defendants' reliance on these cases is misplaced. Plaintiffs assert that these cases considered the elements of common law fraud under state law-not mail or wire fraud prohibited by federal statute. And, plaintiffs contend, the Supreme Court since has held that the elements of common law fraud do not apply to a mail fraud claim.

         In Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008), the Supreme Court held that a plaintiff asserting a RICO claim predicated on mail fraud need not show that it relied on defendant's alleged misrepresentations. Id. at 641-42. In reaching this conclusion, the Court recognized that the federal mail fraud statute included no reliance requirement. Id. at 647-50. The Court also acknowledged that “a person can be injured ‘by reason of' a pattern of mail fraud even if he has not relied on any misrepresentations.” Id. at 649. In rejecting the argument that the common law meaning of fraud should apply to federal mail fraud claims, the Supreme Court explained that “the indictable act under § 1341 is not the fraudulent misrepresentation, but rather the use of the mails with the purpose of executing or attempting to execute a scheme to defraud.” Id. at 652.

         To the extent plaintiffs take Bridge's broad statement to mean they need not plead a fraudulent misrepresentation of fact to support the requirement of a predicate act of mail or wire fraud, the court rejects that argument. Bridge merely held that a plaintiff need not show reliance; it never held that a federal mail fraud claim does not require the other elements of a common law fraud claim-such as the existence of a material misrepresentation of fact. See Cal. Pharm. Mgmt., LLC v. Redwood & Cas. Ins. Co., No. SACV 09-141 DOC, 2009 WL 10669956, at *8 (C.D. Cal. July 29, 2009) (“While Bridge holds that first-party reliance need not be shown, it does not even speak of an ‘intent to deceive' or categorically state that common law elements of fraud have no place in a RICO claim predicated on mail or wire fraud.”). The court declines to adopt plaintiff's interpretation of Bridge.

         Indeed, Bridge suggests just the opposite; that is, the common law fraud element requiring a false representation of existing and material fact is a required element in a federal mail fraud claim. Bridge approvingly cited an earlier Supreme Court decision, recognizing that Neder v. United States, 527 U.S. 1 (1999), had concluded that “[t]he common-law requiremen[t] of ‘justifiable reliance' . . . plainly ha[s] no place in the [mail, wire, or bank] fraud statutes.'” Bridge, 553 U.S. at 648-49 (quoting Neder, 527 U.S. at 24-25). And Neder also recognized that misrepresentation of a material fact is one element of federal mail fraud. 527 U.S. 24-25.

         In sum, none of plaintiffs' arguments support the conclusion that federal mail fraud does not require the common law fraud element of a material misrepresentation of fact. And, importantly, to the extent plaintiffs argue to the contrary, the court is not convinced that Bridge somehow diminishes the persuasive value of the Ninth Circuit's decision in Miller v. Yokohama Tire Corp. Like the Miller plaintiff, plaintiffs here predicate their RICO claims on purported acts of mail and wire fraud involving their employers' alleged misrepresentations about their employment classification. 358 F.3d at 618-19. See also Doc. 23 ¶¶ 57-78, 117-40. As the Ninth Circuit held in Miller, such alleged misrepresentations are not misrepresentations of fact. Miller, 358 F.3d at 621-22. Instead, they are misrepresentations of law that are not actionable in fraud. Id. Following Miller's reasoning, [4] the court concludes that plaintiffs' Complaint fails to allege plausible mail or wire fraud capable of supporting their RICO claim. This conclusion is consistent with other federal court opinions holding that misrepresentations of the law cannot support the predicate act of mail or wire fraud. See, e.g., Sosa v. DIRECTV, Inc., 437 F.3d 923, 940 (9th Cir. 2006) (affirming Rule 12(b)(6) dismissal of RICO claims premised on prelitigation demand letters and phone conversations where defendant allegedly made false representations of law because such statements “are not actionable as fraud, including under the mail and wire fraud statutes”); Apache Tribe of Okla. v. Brown, 966 F.Supp.2d 1188, 1195 (W.D. Okla. 2013) (dismissing RICO claim under Rule 12(b)(6) because the alleged misrepresentations were legal opinions and not “false statements of material fact” sufficient to plead the predicate acts of mail or wire fraud); Va. Sur. Co., Inc. v. Macedo, No. 08-5586 (JAG), 2009 WL 3230909, at *8 (D.N.J. Sept. 30, 2009) (dismissing RICO claim under Rule 12(b)(6) because “Plaintiff's allegations that . . . Defendants committed wire and mail fraud by virtue of falsely claiming that Defendant Jose Moreira was an employee of the Macedos Construction Co., Inc. in order [to] obtain Workers' Compensation benefits is not actionable as mail and wire fraud”).

         To save their RICO claim from dismissal on this ground, plaintiffs argue that their Complaint alleges a scheme to defraud based on representations made by the Agent Contract that present, at minimum, a mixed question of law and fact and thus are actionable in fraud. Doc. 41 at 26. Citing Kansas case law, plaintiffs assert that the question whether an individual is an employee or independent contractor is a question of fact. Falls v. Scott, 815 P.2d 1104, 1112 (Kan. 1991) (“[G]enerally speaking, the question of whether an individual is an employee or an independent contractor is considered a question of fact for the jury or trier of facts.”); Craig v. FedEx Ground Package Sys., ...


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