In the

United States Court of Appeals

For the Seventh Circuit

No. 07-3333

JOHN H. CRICHTON, JR.,

on behalf of himself and all 

others similarly situated,

Plaintiff-Appellant,

v.

GOLDEN RULE INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Southern District of Illinois.

No. 06 C 264—G. Patrick Murphy, Judge.

ARGUED MARCH 31, 2008—DECIDED AUGUST 5, 2009

Before KANNE, EVANS, and SYKES, Circuit Judges.

SYKES, Circuit Judge. John Crichton, Jr., sued Golden

Rule Insurance Company asserting three fraud-based

claims. The district court dismissed one claim with prejudice and gave Crichton an opportunity to replead the

other two. That effort was unsuccessful; the district

court held that the allegations in the remaining two

claims failed to state a claim for relief and dismissed the
2 No. 07-3333

case in its entirety. Crichton’s appeal requires us to consider three questions: (1) whether Crichton had standing

to bring a claim under the Illinois Consumer Fraud and

Deceptive Business Practices Act (“ICFA”), 815 ILL. COMP.

STAT. 505/2 (2006), and somewhat relatedly, whether he

may maintain a claim under Florida’s analog to that act,

see FLA. STAT. ANN. § 501.201 (West 2006); (2) whether

Crichton adequately pleaded a claim for common-law

fraud; and (3) whether Crichton adequately pleaded a

RICO (Racketeer Influenced and Corrupt Organizations

Act) claim. We answer each question “no” and affirm

the judgment of the district court.

I. Background

Florida resident John Crichton began purchasing group

health insurance from Golden Rule in 1995 under a master

policy offered only to members of the Federation of

American Consumers and Travelers (“the Federation”), a

nonprofit organization that provided its members with

(among other services) discounts on insurance through

group-buying power. Crichton renewed his insurance

every year through 2004. In 2002 he filed a complaint

against Golden Rule in the Circuit Court of Madison

County, Illinois, seeking to represent a nationwide class

of Federation members who bought insurance from

Golden Rule. His lawsuit alleged violations of the ICFA

and, if his proposed class was certified, a host of other

state consumer-fraud statutes. Crichton later amended

his suit to add the Federation as a defendant. The Federation sought and received summary judgment in its
No. 07-3333 3

favor and successfully defended that judgment on

appeal. See Crichton v. Golden Rule Ins. Co., 832 N.E.2d 843,

851-54 (Ill. App. Ct. 2005). Crichton’s claims against

Golden Rule were dismissed without prejudice based on

forum non conveniens. (Golden Rule is an Illinois corporation with its principal place of business in Indiana.)

Crichton next proceeded to the District Court for the

Southern District of Illinois where he filed a complaint

against Golden Rule under the diversity jurisdiction of

28 U.S.C. § 1332(d). He reasserted his claim for an alleged

violation of the ICFA (and his class claim under the

consumer-fraud statutes of other states) and also alleged

a claim of common-law fraud. He later amended his

complaint to include a third count, a RICO claim. The

gist of all three claims was that Golden Rule had induced

him to purchase insurance by an artificially low introductory premium and that Golden Rule failed to inform

him that the cost of his renewal premiums would escalate

dramatically because of Golden Rule’s practice of closing

blocks of insurance to new enrollees.

Golden Rule moved to dismiss Crichton’s amended

complaint under Rule 12(b)(6) of the Federal Rules of Civil

Procedure. The district court granted the motion with

prejudice on the ICFA count but without prejudice on

the common-law fraud and RICO counts. Crichton then

filed his second amended complaint, repleading his

common-law fraud and RICO allegations (this time with

greater specificity in an effort to meet the requirements

of Federal Rule of Civil Procedure 9(b)); he also

repleaded, “for the record,” the ICFA claim. Golden Rule
4 No. 07-3333

once again moved to dismiss. The district court dismissed

Crichton’s common-law fraud and RICO claims with

prejudice for failure to state a claim, ignored the already

dismissed-with-prejudice ICFA claim, and entered final

judgment in favor of Golden Rule.

II. Discussion

We review the district court’s order dismissing

Crichton’s claims de novo. St. John’s United Church of Christ

v. City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007), and will

affirm the dismissal if he did not plead “sufficient factual

matter, accepted as true, to ‘state a claim to relief that is

plausible on its face,’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007)). In addition, Crichton’s fraud-based claims are

subject to Rule 9(b)’s heightened pleading requirements,

which means that the circumstances constituting the

fraud must be pleaded “with particularity.” FED. R. CIV.

P. 9(b).

As an initial matter, the parties debate whether the

amended or second amended complaint is the operative

complaint for review. As we have noted, after the

district court dismissed the ICFA count in the amended

complaint with prejudice, Crichton repleaded it in his

second amended complaint “for the record,” adding

certain facts and rearranging the nature of his individual

and class claims under the Florida statutory analog. On

appeal Golden Rule argues that the facts Crichton added

in the second amended complaint are out of bounds on

our review of the earlier dismissed-with-prejudice
No. 07-3333 5

ICFA claim, citing Tricontinental Industries, Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824 (7th Cir. 2007).

In Tricontinental, the defendants moved to dismiss the

plaintiffs’ amended complaint, and while that motion was

pending, the plaintiffs sought and obtained leave to file a

second amended complaint adding two new claims. The

plaintiffs’ second amended complaint, however, not only

added the proposed new claims but also supplemented

the allegations in the original claims. In dismissing the

claims asserted in the plaintiffs’ amended complaint, the

district court declined to consider the supplemental

allegations in the second amended complaint because

leave to replead those original claims had not been

granted. The court later dismissed the additional claims

in the second amended complaint. On appeal we

confined our review of the dismissed claims from the

first amended complaint to the allegations in that complaint, rejecting the plaintiffs’ argument that we should

consider the supplemental allegations contained in the

second amended complaint. Id. at 838 n.8. We reasoned

that because the district court had only granted leave to

add two new claims, not to replead the original claims, it

would be inappropriate to consider on appeal the supplemental allegations contained in the second amended

complaint. Id.

This case is similar. The ICFA claim in Crichton’s

amended complaint was dismissed with prejudice;

Crichton was granted leave to replead only his commonlaw fraud and RICO claims. Repleading (and attempting

to bolster) his ICFA claim in the second amended com-
6 No. 07-3333

plaint “for the record” was thus gratuitous, and the

district court was within its discretion to ignore it. Accordingly, we will review the common-law fraud and RICO

allegations contained in the second amended complaint

and confine our review of the ICFA claim to the allegations in the amended complaint.

A. Standing under the ICFA

The district court dismissed Crichton’s claim under the

ICFA because Crichton—a resident of Florida—lacked

standing to sue under the Illinois statute. The court

applied the test announced by the Illinois Supreme Court

in Avery v. State Farm Mutual Automobile Insurance Co.,

835 N.E.2d 801 (Ill. 2005), which severely limited the

extraterritorial reach of the ICFA. The court held in

Avery that nonresident plaintiffs may sue under the

ICFA only if the circumstances relating to the alleged

fraudulent transaction occurred mostly in Illinois. 835

N.E.2d at 852-53.

More specifically, the Illinois Supreme Court held that

the ICFA did not create a cause of action for fraudulent

acts that had little or no connection to the state of Illinois.

Id. Accordingly, for a nonresident plaintiff to have

standing under the Act, the court required that “the

circumstances that relate to the disputed transaction

occur primarily and substantially in Illinois.” Id. at 853-54.

The court acknowledged that this was not a bright-line

rule but rather a highly fact-bound inquiry in which no

single factor would be dispositive. Id. at 854.
No. 07-3333 7

The facts of Avery help illustrate the test’s operation.

There, the nonresident plaintiffs were consumers who

alleged that their automobile insurer had engaged in

fraudulent acts by supplying substitute parts on insured

repairs. Although the insurer had its headquarters in

Illinois, the court held that the consumers could not

avail themselves of the ICFA based on that fact alone. Id.

Most of the relevant circumstances underlying the

alleged fraudulent activity in Avery had no connection to

Illinois: The consumers did not reside there; they

received repair estimates in their home states; those

repairs were made elsewhere; the alleged deception itself

took place in states other than Illinois; and the plaintiffs

communicated with local agents, not the home office in

Illinois. Id.

Phillips v. Bally Total Fitness Holding Corp., 865 N.E.2d

310 (Ill. App. Ct. 2007), provides another example of how

the Avery test operates. There, two nonresident plaintiffs

alleged that a health-club chain headquartered in Illinois

had violated the Act by refusing to cancel their memberships. But as in Avery, the location of the health club’s

headquarters was not dispositive. Id. at 315-16. Because

the plaintiffs resided elsewhere, purchased their club

memberships and used facilities in their home states, and

dealt with collection agencies outside Illinois, the court

held they lacked standing to sue under the ICFA. Id.

We reach the same conclusion here. Crichton resides

in Florida, received promotional insurance materials

there, entered into and renewed his insurance there,

submitted claims there, and was allegedly deceived there.
8 No. 07-3333

Golden Rule’s principal place of business is in Indiana, not

Illinois; and although it maintains a “home office” in

Illinois, from which it issues insurance policies, that

alone is not enough, under Avery, to confer nonresident

standing on Crichton to sue under the ICFA. On the

totality of the facts alleged here, we agree with the

district court that the circumstances of the alleged fraudulent activity did not occur “primarily and substantially

in Illinois.” Accordingly, Crichton lacks standing to sue

under the ICFA.

The district court also held that to the extent that

Crichton was asserting a claim under Florida’s consumerfraud statute, the claim must be dismissed because that

statute does not permit suits against insurers. See FLA.

STAT. ANN. § 501.212(4) (West 2006) (“This part does not

apply to . . . (4) [a]ny person or activity regulated under

laws administered by . . . (a) [t]he Office of Insurance

Regulation of the Financial Services Commission; . . .

or (d) [a]ny person or activity regulated under the laws

administered by the former Department of Insurance . . . .”). This determination was manifestly correct;

Golden Rule is an insurer under Florida law. W.S. Badcock

Corp. v. Myers, 696 So. 2d 776, 782-83 (Fla. Dist. Ct. App.

1996) (citing Prof’l Lens Plan, Inc. v. Dep’t of Ins., 387 So. 2d

548, 550 (Fla. Dist. Ct. App. 1980) and requiring that an

insurance provider have “(1) [a]n insurable interest; (2) [a]

risk of loss; (3) [a]n assumption of the risk by the insur[er];

(4) [a] general scheme to distribute the loss among the

larger group of persons bearing similar risks; [and]

(5) [t]he payment of a premium for the assumption

of risk”). Crichton’s statutory consumer-fraud claim—
No. 07-3333 9

Conflicts-of-law analysis under Illinois law—which is the 1

appropriate substantive law of the district court’s forum state,

see Erie R.R. Co. v. Tompkins, 304 U.S. 64, 71-80 (1938); see also

Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)

(applying Erie to conflicts of laws)—might suggest that Florida’s

common law should apply to this claim because Florida has the

most significant relationship to the transaction. See Ingersoll v.

Klein, 262 N.E.2d 593, 595-96 (Ill. 1970) (adopting a mostsignificant-contacts rule in Illinois after discarding the doctrine

of lex loci delicti). There is, however, no conflict between

Florida and Illinois law in this area; the district court properly

chose to apply Illinois common law, the law of the forum

state. See, e.g., Int’l Adm’rs, Inc. v. Life Ins. Co. of N. Am., 753

F.2d 1373, 1376 n.4 (7th Cir. 1985).

under the ICFA or its Florida analog—was properly

dismissed.

B. Common-Law Fraud

The district court also properly concluded that Crichton

failed to state an actionable claim of common-law fraud.

1

Crichton alleged that Golden Rule should have

disclosed that the renewal premiums on its group health

plans would ratchet upward throughout the life of his

policy because of its underwriting practice of closing

blocks of insurance to new enrollees and that its failure

to do so was fraudulent. These allegations amount to

a claim of fraudulent concealment or fraud-bynondisclosure; such a claim requires a duty to disclose on

the part of a defendant. See, e.g., Connick v. Suzuki Motor
10 No. 07-3333

Co., 675 N.E.2d 584, 593 (Ill. 1996); AMPAT/Midwest, Inc. v.

Ill. Tool Works Inc., 896 F.2d 1035, 1040 (7th Cir. 1990)

(applying Illinois law). Where, as here, there is no

fiduciary relationship between the parties, see Nielsen v.

United Servs. Auto. Ass’n, 612 N.E.2d 526, 531 (Ill. App. Ct.

1993) (“In Illinois, there is no fiduciary relationship between an insurance company and an insured.”); Overbey

v. Ill. Farmers Ins. Co., 525 N.E.2d 1076, 1084 (Ill. App. Ct.

1988) (same), a duty to disclose may arise under

Illinois law if the defendant makes an affirmative statement that it passes off as the whole truth while omitting

material facts that render the statement a misleading “halftruth,” see Heider v. Leewards Creative Crafts, Inc., 613

N.E.2d 805, 811 (Ill. App. Ct. 1993); Apotex Corp. v. Merck &

Co., 229 F.R.D. 142, 149 (N.D. Ill. 2005).

Here, Crichton alleged that Golden Rule made several

statements that he claims qualify as deceptive half-truths

giving rise to a duty to disclose: It referred to its

insurance as “group” insurance while failing to disclose

the effect of its practice of periodically closing blocks

of insurance to new members; it issued insurance certificates explaining the connection between claims costs and

the amount of time an insurance certificate has been in

place, but did not disclose its underwriting practice of

closing blocks of insurance; and it sent letters announcing

premium increases without explaining that the “real

reason” for those increases was the closure of blocks of

insurance to new enrollees. Critically, however, Crichton’s

allegations do not remotely suggest that any of these

communications from Golden Rule purported to be an

explanation of all of the underwriting factors that might
No. 07-3333 11

affect Crichton’s insurance premiums. By labeling its

insurance as “group” insurance, offering a summary of its

claims practices, and announcing annual premium increases, Golden Rule did not purport to explain the “whole

truth” of its underwriting practices. See Apotex, 229 F.R.D.

at 149 (noting that “a summary is just that, a summary”

and holding that such a summary “does not suggest

fraud”). That is, none of these alleged statements to

certificate-holders was represented to be a comprehensive explanation of all factors affecting Golden Rule’s

insurance premiums. Accordingly, there are no allegations giving rise to a duty to disclose, and Crichton’s

common-law fraud claim was properly dismissed.

C. RICO Claim

Finally, the district court properly dismissed Crichton’s

claim under the RICO statute, 18 U.S.C. §§ 1961-1968. RICO

prohibits “any person employed by or associated with

any enterprise . . . to conduct or participate, directly or

indirectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity.” 18 U.S.C.

§ 1962(c).

We have held that “[a] RICO complaint must identify the

enterprise.” Richmond v. Nationwide Cassel L.P., 52 F.3d 640,

645 (7th Cir. 1995). Crichton identifies the enterprise as the

Federation. Alternatively, Crichton alleges that Golden

Rule and the Federation, together, as two persons associated in fact, see 18 U.S.C. § 1961(4), made up the RICO

enterprise. An association-in-fact enterprise theory

requires that the association-in-fact “enterprise” and the
12 No. 07-3333

Crichton notes that the district court did not readdress this 2

theory in its second order. Golden Rule responds that the

district court did not do so because it had already rejected this

theory in its first order. True, but the district court dismissed

this claim without prejudice, allowing Crichton to replead it.

The district court’s failure to revisit this theory of potential

RICO liability in its second order does not affect our review,

however; we may affirm on any basis in the record. E.g.,

Slaney v. Int’l Amateur Athletic Fed’n, 244 F.3d 580, 597 (7th Cir.

2001).

person sought to be held liable be sufficiently distinct. See

Haroco, Inc. v. Am. Nat’l Bank & Trust Co. of Chi., 747 F.2d

384, 401-02 (7th Cir. 1984); see also Richmond, 52 F.3d at 647.

This is because RICO “liability depends on showing

that the defendants conducted or participated in the

conduct of the ‘enterprise’s affairs,’ not just their own

affairs.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993).

As to the first of these theories, the parties debate on 2

appeal whether Crichton’s allegations are sufficient

to state a claim that Golden Rule “conduct[ed] or

participat[ed] . . . in the conduct of [the Federation’s]

affairs.” If not, there is no need to address the remaining

elements of a RICO claim under § 1962(c). See Sedima,

S.P.R.L. v. Imrex Co., 473 U.S. 479, 496-97 (1985) (requiring

“(1) conduct (2) of an enterprise (3) through a pattern (4)

of racketeering activity” to prove a violation of § 1962(c));

see also Goren v. New Vision Int’l, Inc., 156 F.3d 721, 727

(7th Cir. 1998) (same).

Crichton alleges that Golden Rule conducted and participated in the Federation (the alleged RICO enterprise) by
No. 07-3333 13

helping the Federation draft new bylaws, assisting it in

setting the dues that Golden Rule would subsequently

collect from certificate-holders on its behalf, and controlling the marketing information disseminated by

the Federation about Golden Rule’s health-insurance

products. These allegations are insufficient to state a

RICO claim. The statute does not penalize tangential

involvement in an enterprise; a plaintiff must plead and

prove that a defendant took some part in directing

or conducting the alleged “enterprise” such that it

“participate[d] in the operation or management of the

enterprise itself.” Reves, 507 U.S. at 185; see also Goren, 156

F.3d at 727. Allegations that a defendant had a business

relationship with the putative RICO enterprise or that a

defendant performed services for that enterprise do not

suffice. Slaney v. Int’l Amateur Athletic Fed’n, 244 F.3d

580, 597 (7th Cir. 2001); Goren, 156 F.3d at 727.

Here, Crichton has done little more than plead facts

suggesting the existence of the marketing relationship

between the Federation and Golden Rule. Assisting in

the setting and collection of membership dues on the

Federation’s behalf and controlling the content of its own

insurance promotional materials are activities consistent

with the existence of a business partnership, not the

prototypical RICO violation in which the defendant

seizes control of an enterprise to accomplish an illegal

purpose by using the enterprise’s resources, contacts,

and appearance of legitimacy. Fitzgerald v. Chrysler Corp.,

116 F.3d 225, 227 (7th Cir. 1997). Likewise, that Golden

Rule is alleged to have assisted the Federation in

redrafting its bylaws suggests only that Golden Rule
14 No. 07-3333

performed a service for the Federation. These allegations,

taken individually or together, are insufficient to state a

claim that Golden Rule controlled the operation or management of the Federation.

For similar reasons, Crichton’s allegations under the

alternative theory of an association-in-fact enterprise are

also insufficient. As we have noted, an association-in-fact

enterprise must be meaningfully distinct from the

entities that comprise it such that the entity sought to be

held liable can be said to have controlled and conducted

the enterprise rather than merely its own affairs. See

Reves, 507 U.S. at 185; Haroco, 747 F.2d at 401-02;

Richmond, 52 F.3d at 647.

Here, Crichton has done no more than describe the

ordinary operation of a garden-variety marketing arrangement between Golden Rule and the Federation. His

allegations of the Federation’s role suggest it was merely

a conduit for the sale of Golden Rule’s insurance. This is

not what RICO penalizes. See Fitzgerald, 116 F.3d at 227.

What Crichton alleges here is a fraud perpetrated by

Golden Rule, not an association-in-fact enterprise

directed and controlled by Golden Rule. That is, Crichton’s

claim “begins and ends” with the fraud allegedly committed by Golden Rule. Richmond, 52 F.3d at 647. This

is insufficient to state a RICO claim based on an

association-in-fact enterprise.

We also note that Crichton failed to adequately plead

an association-in-fact enterprise because he has not

pleaded an organizational structure or hierarchy for the

alleged association-in-fact enterprise. Stachon v. United
No. 07-3333 15

Consumers Club, Inc., 229 F.3d 673, 675-77 (7th Cir. 2000);

Richmond, 52 F.3d at 645-46. His allegations describe

nothing more than the terms of an agreement between

Golden Rule and the Federation to market Golden Rule’s

health insurance to the Federation’s members. A RICO

enterprise is more than a combination of persons who

commit alleged predicate acts of racketeering; “there must

be ‘an organization with a structure and goals separate

from the predicate acts themselves.’” Stachon, 229 F.3d at

675 (quoting United States v. Masters, 924 F.2d 1362, 1367

(7th Cir. 1991)). Allegations of this sort are missing here.

Accordingly, the district court was right to dismiss

Crichton’s RICO claim.

AFFIRMED.

8-5-09