Valpo Law Blog

Analysis of current legal issues and cases in the Seventh Circuit Court of Appeals

Category: Antitrust

No Wonder People Do Not Like Insurance Agents


By: Jeremy M. Schmidt
J.D. Candidate, 2017
Valparaiso University School of Law

Ohio National Life Assurance Corp. v. Douglas W. Davis, et al. came before the Seventh Circuit on appeal from a summary judgement decision at the trial court. Mavash Morady (Morady), a defendant in this case, was a contracted insurance agent with Ohio National Life Assurance Corp. (Ohio National). Douglas Davis (Davis), another defendant in this case, was working with Morady to defraud Ohio National by using an investment strategy known as Stranger-Owned Life Insurance (STOLI).

Davis and Morady devised a scheme where they chose people that were older because they believed that they would be prime candidates for their scheme. It would begin by Davis approaching an individual, and then asking them to take out a life insurance policy. These people would receive a compensation from Davis for taking out a life insurance policy.

Morady, being the life insurance agent, would meet with the chosen people and have them fill out all of the forms to apply for life insurance. Morady would then fraudulently alter the documents to make these potential clients look like they are younger, and healthier, than they actually were. Ohio National would confirm that these prospective clients were actually people, but they did not check further into any of the clients to ensure the paperwork was completely accurate.

Davis and Morady then would contact the clients about a month after the life insurance went into force. The two then would have the clients sign the policy over to a irrevocable trust that was managed by a company that Morady’s husband owned. The life insurance policy then was owned by the company, and the beneficiary was also the company. The clients never paid any of the premiums because the company paid the premiums for them. The company then would sell the life insurance polices to investors. By doing this, Morady was violating her employment contract with Ohio National because the employment contract does not allow for an agent to sell policies that will be involved in a scheme where a third party will pay the premium, and will thus benefit from the death of the insured.

Once Ohio National found about the scheme Davis and Morady had been carrying out, they voided out all the policies that were involved. Ohio National then filed a complaint against Davis, Morady, Morady’s husband, and other investors. The two sides filed briefs that had a common fact pattern, which means that there was no dispute to the events and how they happened. Ohio National filed a motion for summary judgement, which the court granted in their favor. The court gave Ohio National everything they asked for with the exception for the judgment against Steven Egbert (Egbert). The court reasoned that Egbert was an innocent bystander in the scheme when he made an investment into a life insurance policy, and could not have known the policy was created through fraudulent acts.

The Seventh Circuit decided that summary judgement in favor of Ohio National was correct and the damages awarded were reasonable because Davis and Morady were found to have committed a tort of civil conspiracy.

Practicality of Actual Injury in Data Breach

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By: Duke Truong
J.D. Candidate, 2017
Valparaiso University School of Law

Imagine being one of four million members under the care of Advocate Health and Hospitals Corporation (Advocate) and waking up to news that thieves have stolen your confidential information.  This is exactly what happened the morning after July 15, 2013, when burglars stole four password-protected computers from Advocate.   The computers contained patient’s confidential information: social security numbers, Medicare and Medicaid data, medical record numbers, health insurance data, and medical diagnoses along with names, addresses, and date of birth.  Advocate, whom patients entrusted with the duty of protecting their data, did not notify them of the breach until August 23, 2013.  Despite these facts, no proof of improper access or improper use of the confidential information actually occurred.

Matias Maglio and other affected patients brought a class action suit against Advocate in the circuit court of Lake County and Kane County.  Both lawsuits alleged claims of negligence, invasion of privacy, and violations of the Consumer and Deceptive Business Protection Act and the Illinois Personal Information Act.  Yet, plaintiffs failed to allege any unauthorized uses of their private information.  Despite the fact plaintiffs did not suffer any actual injury, they moved forward with their lawsuits anyhow.

Advocate moved to dismiss the complaints under the Rules of Civil Procedure for failure to state a claim and for lack of standing.  The plaintiffs did not suffer an injury-in-fact and only speculated that their stolen confidential information may lead to increased risk of identity fraud.  The doctrine of standing requires a plaintiff to raise issues of a real injury to which the law can recognize so to provide a remedy.  The complaints only alleged future, uncertain risk of identity fraud. The district courts of Lake County and Kane County dismissed the complaints in May and July of 2014, respectively.

However, the plaintiffs appealed to the Appellate Court of Illinois on grounds that the lower courts erred in its decisions.  The appellate panel consolidated the cases from the two counties and affirmed the district court’s decisions in Maglio v. Advocate Health and Hospitals Corporation on August 6, 2015.

The appellate panel reiterated that plaintiff’s failure to establish any specific injury makes the lawsuits insufficient.  To date, only two of the 4 million members suffered actual identity theft and they are not parties in the lawsuits.  The court held that this fact alone does not prove that plaintiffs face certain imminent risk of substantial harm.  Speculating about a future injury or harm is not grounds for a claim in the court of law.  To move forward, plaintiffs must show that their medical records were in fact disclosed to third parties.

Although the breach did not result in unauthorized use of information, speculation is not a cause for action.  To help lessen the burden on the courts, plaintiffs have to make sure their claims contain actual injuries otherwise it is a waste of resources for parties involved.  It may seem minor to determine actual injury, but the practicality is priceless.  As society increasingly depend on technology to store confidential information, employers (especially healthcare providers) should make data security one of the top priorities.  Employers should consider safeguards such as encryption and periodic audits to lessen the likelihood of a data breach. Proper training about HIPAA, security regulations and data privacy laws will further guard against a breach.

Seventh Circuit Takes Stance on Foreign Subsidiaries


By: Alex Salvi
Valparaiso University Law School
J.D. Candidate, 2016

Last month, the Seventh Circuit Court of Appeals limited antitrust laws’ ability to reach sales made to foreign subsidiaries of U.S. companies. This was done when they denied Motorola Mobility, LLC’s request to rehear its $3.5 billion price-fixing case against foreign manufacturers dealing with its subsidiaries. Motorola’s ten foreign subsidiaries sought liquid crystal display (“LCD”) panels used to manufacture Motorola cellphones outside the US. Motorola contended that companies selling to two of its subsidiaries were fixing their prices in order to eliminate competition in the market in violation of the Sherman Act. These defendant companies included Samsung Electronics Co. Ltd., Toshiba Corp., AU Optronics Corp., and others.

Motorola’s case came up against the Foreign Trade Antitrust Improvements Act (FTAIA). Congress passed the FTAIA to give a definitive limitation as to the international reach of the Sherman Act. In essence, passage of the act limited federal courts’ subject matter jurisdiction in regard to issues of antitrust law. Motorola argued that the alleged conspiracy was not governed by the act because it was aimed at a U.S. parent corporation. In other words, defendants purposefully did business with Motorola and knowingly engaged in anticompetitive behavior that passed into U.S. commerce through Motorola’s importation and sale of the cellphones.

One of the disadvantages to a U.S. company outsourcing its manufacturing, however, is that the FTAIA can block any action from being taken against companies that affect its foreign subsidiaries. In this case, although Motorola is an American company headquartered in Schaumburg, Illinois, the defendants in question sold LCD panels to Motorola’s overseas subsidiaries, not the parent company itself. In fact, not only were the panels purchased abroad, but they were used in the manufacturing of phones built abroad and never reached the United States until they were ready to be sold. Under FTAIA, claimants that purchase indirectly and/or suffer derivative harm lack antitrust standing to bring suit in the United States.

However, Motorola argued that the FTAIA should not apply to defendants because they set up offices in Illinois and deal directly with Motorola and is subsidiaries as if they were one company. In this way, the defendants integrated themselves into the United States stream of commerce. In an opinion by Judge Posner, the panel rejected the argument because Motorola was only injured indirectly—through its subsidiaries. Judge Posner further argued that the corporate formalities of the U.S. parent and its foreign subsidiaries should be respected. Motorola decided to have its subsidiaries incorporated and pay taxes in foreign jurisdictions, and therefore, the subsidiaries should be treated as separate and must seek relief in the countries in which they are incorporated. A parent does not have a right to sue for damages on behalf of its foreign subsidiaries in the United States.

Despite its basic approach, the decision allows the court to impose damages if the future conspiracy has a “direct, substantial and reasonably foreseeable effect on U.S. commerce.” Additionally, the FTAIA does not block the U.S. Department of Justice from seeking injunctive or criminal relief when these instances do indeed occur.

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