-~4-
transfers via mail, facsimile transmittal, or telephone. The
Transfer Rules state that no more than four transfers per Contract
will be permitted in any one calendar month. Transfers into sub-
accounts that are designated “Limited Access Funds” (a list of
which is attached to the Transfer Rules), in which Emerald invests,
are permitted only once a month. Moreover, if transfers both into
and out of a particular Limited Access Fund are made in the same
month, then no further transfers into that Limited Access Fund may
be made for a period of six months.

The Transfer Rules state that “[n]o additional payments will
be permitted into annuity contracts which are subject to these
{Transfer Rules].” (Complaint, Ex. D, at 3.) In addition, the
Transfer Rules state that they are subject to change at any time
without notice, and that Allmerica “reserves” the right to reject
transfers that it deems to be “of such magnitude or otherwise of a
nature as to possibly be disruptive to the underlying sub-accounts
or funds or otherwise be injurious to other Policyholders or
(Alimerica] (even if otherwise made in accordance with these
Transfer Rules).” (Id. at 4.)

For approximately the next seven months after receiving the
December Letters and Transfer Rules, Emerald did not trade in the
Annuities. On April 4, 2002, counsel for Emerald sent a letter to
Mark A. Hug, President of Allmerica, informing Mr. Hug that Emerald

believed there was no support for the new Transfer Rules and that



-9-

c. Count III -- Injunctive Relief/Specific Performance

In Count III, plaintiffs seek injunctive relief and specific
performance “[t]o the extent that there is no adequate remedy at
law.” (Complaint, @ 31.) They also allege that “{g]jiven
Allmerica’s conduct and positions, without injunctive relief and
specific performance, Emerald is at risk to suffer irreparable
harm.” (Id,., I 32.) At the outset, we note that injunctive relief
and specific performance are remedies, not independent causes of
action as they are pled in the complaint. See LaSalle Nat’l] Bank
v. Metropolitan Life Ins, Co., 18 F.3d 1371, 1376 (7th Cir. 1994)

{specific performance); Noah v. Enesco Corp., 911 F. Supp. 305, 307
(N.D, Ill. 1995) (injunctive relief). Nonetheless, we will address
these claims because the allegations are inadequate as to both
types of relief.

1. Injunctive Relief

To state a claim for injunctive relief, a plaintiff must plead
that (1) no adequate remedy at law exists; (2) plaintiff will
suffer irreparable harm absent injunctive relief; (3) the
irreparable harm plaintiff will suffer absent injunctive relief
outweighs the irreparable harm defendant will suffer if relief is
granted; (4) the plaintiff has a reasonable likelihood of
prevailing on the merits; and (5) the injunction will not harm the
public interest. See Sol set _H - v. Turnock, 900 F.2d

1012, 1014-15 (7th Cir. 1990).


-6-
Annuities (Count II, pled in the alternative); and seeks specific
performance and an injunction against Allmerica’s enforcement of
the Transfer Rules (Count III).
Defendant now moves to dismiss the complaint.
z. ON
The purpose of a 12(b)(6) motion to dismiss is to test the

sufficiency of the complaint, not to resolve the case on the

merits, 5A Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1356, at 294 (2d ed. 1990). Dismissal is

appropriate only if “‘it is clear that no relief could be granted
under any set of facts that could be proved consistent with the
allegations.’” Ledford v. Sullivan, 105 F.3d 354, 356 (7th Cir.
1997) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)).
A. oun -~ Breach Con

Allmerica argues that plaintiffs’ claim for breach of contract
fails because there is no term in the Contracts that provides
plaintiffs with unrestricted transfer rights. Allmerica is simply
incorrect. The Contracts, on their face, do not impose any limits
on transfers among accounts. Therefore, plaintiffs adequately
state a claim for breach of contract, whether the claimed breach is

the imposition of the transfer restrictions or Allmerica’s refusal



-5-
the Contracts provided that owners were permitted to make
“transfers among accounts.” (Complaint, Ex. F.) Counsel for
Allmerica responded by reiterating Allmerica’s position that
Emerald’s Annuities were subject to the Transfer Rules. (id., Ex.
G.)

On June 5, 2002, Emerald attempted to “trade on” the Annuities
(the complaint does not specify in what manner), but was refused by
Allmerica because Emerald had not submitted the Transfer/Payment
Allocation Form referred to in the December Letters. On June 26,
2002, Joe Petti of Allmerica’s Relationship Management Group left
a voice-mail message with counsel for Emerald, stating that
Allmerica would not accept any more trades by Emerald unless
Emerald executed the Transfer/Payment Allocation Form and accepted
the new Transfer Rules. Emerald has since been unable to execute
transfers. The total value of the Annuities as of July 2002 was
approximately $12.5 million. To remove its money from the
accounts, Emerald would be charged a 4% surrender fee.

Plaintiffs contend that Allmerica’s imposition of the Transfer
Rules and its refusal to allow plaintiffs to make transfers among
the Annuities without plaintiffs’ acceptance of the Transfer Rules
constitute breach of contract and the duty of good faith and fair
dealing. Plaintiffs filed this action on July 24, 2002. The
complaint sets forth a breach of contract claim (Count I); a

promissory estoppel claim, based on the prospectus for the



~B-
Allmerica views the prospectus provision as a reservation of the
right to change the Contracts for any reason, but that is not what
the prospectus says, and it is not clear that the reservation of
rights applies in this case.
8B. Count II -~- Promissory Estoppel

In Count II (which is pled in the alternative), plaintiffs
allege that “Allmerica expressly promised and disclosed to Emerald
in the prospectus that Emerald would be guaranteed unrestricted
transfer rights and did not reserve for themselves the unilateral
right to limit or modify the transfer rights.” (Complaint, 7 26.)

“An action in promissory estoppel must assert the following
elements: (1) an unambiguous promise; (2) reliance thereon by the
Party to whom the promise is made; (3) the reliance is expected and
foreseeable by the party making the promise; and (4) the party to
whom the promise is made in fact relies upon it to his or her
injury.” Bolden v. General Accident, Fire & Life Assurance Corp,
456 N.BE.2d 306, 308 (I11. App. Ct. 1983). Allmerica contends that
plaintiffs fail to allege a promise or reliance upon a promise.

Plaintiffs fail to specify in the complaint which provisions
of the lengthy prospectus they view as “promises,” and they also
fail to allege that they relied on these specific promises.
Therefore, Count II is dismissed with leave to replead if

Plaintiffs can allege specific promises and reliance.



Minute Order Form (06/97)
a

United States District Court, Northern District of Dlinois

Judge if Othe

Name feed de John F. Grady Sng Sef Os

CASE NUMBER 02 C 5251 DATE April 17, 2003
CASE American Nat Bank & Trust v. Allamerica Fin Life Ins Co
TITLE

{in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and {b) state briefly the

nature of the motion being presented.)

MOTION:
DOCKET ENTRY:
(1) o Filed motion of [ use listing in “Motion” box above.]
(2) i) Brief in support of motion due
3) o Answer brief to motion due . Reply to answer brief due .
(4) a Ruling/Hearing on set for at
(5) a) Status hearing[held/continued to] [set for/re-set for] on set for at
(6) oO Pretrial conference[held/continued to] [set for/re-set for] on set for at .
() a Trial[set for/re-set for] on at
(8) a {Bench/Jury trial] [Hearing] held/continued to at
(9) ia) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to)
COFRCP4(m) O General Rule 21 0 FRCP41(a)(1) OO FRCP41(a)(2).
ao {Other docket entry] Defendant’s motion to dismiss [7-1] is granted in part and denied in part. The
motion is denied as to Count I of the complaint. The motion is granted as to Counts II and I of the
complaint. Plaintiffs are given until April 30, 2003, to replead Count II (the promissory estoppel claim)
if they can allege specific promises and reliance. ENTER MEMORANDUM OPINION.
ql) x [For further detail see order (on reverse side of/attached to) the original minute order.]
No notices required, advised in open court. Document
No notices required. uinber af notices Number
X_ | Notices MAILED by judge’s staff. APR 21 2903
Notified counsel by telephone. . . dae docketed
Docketing to mail notices. i Ss
Mail AO 450 form. Lunoa LIM ISIC ‘Sn doin pur intats
Copy to WN
c. date mailed notice
courtroom BSI Wd 81 yay eu
KAM deputy’s _. KAM
inttials "Bote/time receivedlip |
central Clerk's Office mailing deputy iitiake

(Reserved for use by the Court)



-11-
law. See John 0. Schofield, Inc. v. Nikkel, 731 N.E.2d 915, 926
(Ill. App. Ct. 2000).

Plaintiffs have pled the existence of the Contracts, that they
have complied with them and are ready to perform their part of
them, and that Allmerica has failed to perform its part of the
Contracts. However, as discussed supra, they fail to allege that
they have no adequate remedy at law; therefore, the claim for
specific performance must be dismissed. As with the claim for
injunctive relief, plaintiffs may seek leave of court to replead
the specific performance claim (as a remedy for breach of contract
or another independent cause of action) should they discover facts
that would allow them to state such a claim.

D. A rney’s Fi

Defendant moves to strike the request for attorney’s fees in
the prayer for relief in Count III. Because we are dismissing
Count III, defendant’s request is moot.

CONCLUSION

Defendant’s motion to dismiss the complaint is granted in part
and denied in part. The motion is denied as to Count I of the
complaint. The motion is granted as to Counts II and III of the
complaint.

Plaintiffs are given until April 30, 2003, to replead Count II
(the promissory estoppel claim) if they can allege specific

promises and reliance.



~10-

Plaintiffs’ claim for injunctive relief fails for a number of
reasons. Plaintiffs do not actually allege that no adequate remedy
at law exists, nor do they allege that they will suffer irreparable
harm absent an injunction, nor do they set forth minimal facts
indicating a threat of irreparable harm. They also fail to allege
a likelihood of success on the merits and that an injunction would
not harm the public interest. Therefore, plaintiffs’ claim for
injunctive relief must be dismissed; it fails to put Allmerica on
notice of the bases for the requested relief. Plaintiffs may seek
leave of court to replead the claim (as a remedy for breach of
contract or another independent cause of action) should they
discover facts that would allow them to state a claim for
injunctive relief.

2. Specific Performance

Allmerica also asserts that plaintiffs have not stated a claim
for specific performance of the Contracts. “In order to be
entitled to specific performance, plaintiff must allege and prove
the following elements: (1) the existence of a valid, binding, and
enforceable contract; (2) plaintiff has complied with the terms of
his contract or is ready, willing, and able to perform his part of
the contract; and (3) defendant failed or refused to perform his
part of the contract.” Dixon v. City of Monticello, 585 N.E.2d
609, 618 (Ill. App. Ct. 1991). In addition, specific performance

generally will not be granted where there is an adequate remedy at


-7-
to perform under the Contracts unless plaintiffs accepted the
limitations.

Allmerica contends that the prospectus for the Annuities gave
Allmerica the right to change the terms of the contract. The
provision on which Allmerica relies, titled “Changes to Comply with
Law and Amendments,” states:

The Company reserves the right, without the consent of

Owners, to suspend sales of the Contract as presently

offered, and to make any change to provisions of the

Contract to comply with, or give Owners the benefit of,

any federal or state statute, rule or regulation,

including but not limited to requirements for annuity

contracts and retirement plans under the Code and

pertinent regulations or any state statute or regulation.
(Allmerica’s Memorandum, Ex. B, at 71.) We need not decide whether
to take this language into account when interpreting the Contracts,
though, because Allmerica fails to explain how it applies to the
alleged breaches of contract. There is no indication that the
Transfer Rules were imposed to give plaintiffs “the benefit of” any
federal or state statute, rule or regulation. Allmerica argues, in
a footnote in its reply, that the Transfer Rules gave plaintiffs

the benefit of Securities and Exchange Commission “regulatory

pronouncements,” but fails to develop this argument any further.

Y At this point, we are only concerned with whether the complaint states
a claim, and it does. Any claimed limit on the number of transfers plaintiffs
could make would have to be derived from parol evidence, if admissible.

We do not believe that the duty of good faith and fair dealing is at issue
here. That duty requires a party “vested with contractual discretion” to
exercise it reasonably. Diamond v. United Food & Commercial Workers Union Local
881, 768 N.E.2d 865, 871 (Ill. App. Ct. 2002). The Contracts did not vest
Allmerica with discretion regarding transfers.



-3-

In December 2001, Allmerica sent letters regarding the

Annuities

(the “December Letters”) to Emerald that stated in part:

We are writing to you as the Owner(s) of the Contract (s)
referenced above regarding the transfer activity among
the investment portfolios (the “Underlying Funds”) for
the Contract(s). The Contract(s) is not designed for use
by individuals, professional market timing organizations
or other entities that do “market timing”, programmed
transfers, frequent transfers or transfers that are large
in relation to the total assets of an Underlying Fund.
Market timing and frequent transfers adversely affect the
investment management and investment returns of the
Underlying Funds. ...

We have been monitoring the transfer activity in recent
months in the Contract(s) referenced above and have
concluded that frequent transfers in the Contract(s) are
adversely affecting the Underlying Funds and other
investors who have invested in these Funds.

As a result, you must comply with Allmerica’s Transfer
Rules and Procedures for Market Timers and Frequent
Traders. A copy of the Transfer Rules and Procedures for
Market Timers and Frequent Traders is enclosed with this
letter for your reference. .. .

The Transfer Rules and Procedures will become effective
as of December 17, 2001. However, any investment
executive or adviser authorized to act on your behalf
must continue at this time to direct all transfer
requests to us by fax transmission by 2:00 PM Eastern
Time on Allmerica’s Transfer/Payment/Allocation Form.

(Complaint, Ex. C.)

Allmerica’s Variable Product Transfer Rules and Procedures for

Market Timers and Frequent Traders (the “Transfer Rules”), copies

of which were attached to the December Letters, consist of four

pages of detailed rules regarding transfers among accounts related

to contracts that Allmerica has deemed “Market Timing Contracts.”

Among other things, the Transfer Rules contain procedures for


-2-
were issued by defendant Allmerica Financial Life Insurance and
Annuity Company (“Allmerica”). Plaintiff American National Bank
and Trust Company of Chicago holds title in the Annuities for the
benefit of Emerald, and Emerald, as beneficial owner, controls,
manages, and supervises all investment decisions related to the
Annuities. The owner of the Annuities may invest contributions in
a variety of investment options in “sub-accounts” managed by Kemper
Gateway, primarily stock, bond, and money market mutual funds.
Plaintiffs allege that Allmerica advertises to the general public
that flexible trading is allowed in the annuity products it sells.

The parties entered into “Kemper Annuity Contracts” (the
“Contracts”) setting forth the terms and conditions governing the
Annuities. The Contracts contain integration clauses stating that
“[t]he entire contract consists of this contract, any application
attached at issue and any endorsements.” (Complaint, Exs. A & B,
Contracts, at 18.) The applications were attached, but no
endorsements were. Regarding transfers among accounts, the
Contracts provide, in relevant part:

Prior to the Annuity Date, the Owner may transfer amounts

among accounts by Written or Telephone Request to the
Principal Office...

There is no charge for the first twelve transfers per
contract year. A transfer charge of up to $25 may be
imposed on each additional transfer.

(Complaint, Exs. A & B, Contracts, at 10.)



a

02-5251.031-JcD April 17, 2003

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS rN

EASTERN DIVISION

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Trustee
f£/b/o Emerald Investments Limited
Partnership, and EMERALD
INVESTMENTS LIMITED PARTNERSHIP,
an Illinois partnership,

%
Se ve

v. No. 02 C 5251 hal

ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY,

Defendant.

UM_OPIN:

Before the court is defendant’s motion to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b) (6).
For the reasons stated below, the motion is granted in part and
denied in part.

BACKGROUND

Plaintiff Emerald Investments Limited Partnership (“Emerald”)
is an entity that invests in annuities. To carry out its
proprietary trading strategy, Emerald requires a high degree of
flexibility in moving its money quickly and freely among
investments.

On March 17, 1999, Emerald invested $2.5 million in each of

two annuities (the “Annuities”), for a total of $5 million, that

)
)
)
)
)
)
)

Plaintiffs, ) v
) .
)

)
)
)
)
)



DATE:

ENTER:

April 17, 2003

-12-

QSL,

John Ff Gyady,

United States

istrict/ Judge