UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

YITZCHOK ROKOWSKY, on behalf of

himself and all others similarly situated,

Plaintiff,

v.

VERICITY, INC.; MEMBERS MUTUAL;

FIDELITY LIFE ASSOCIATION; and APEX

HOLDCO L.P., ERIC RAHE, CALVIN

DONG, SCOTT PERRY, RICHARD

HEMMINGS, JAMES E. HOHMANN,

JAMES SCHACT, LINDA WALKER

BYNOE, STEVEN GROOT, JOHN FIBIGER,

AND NEIL ASHE

Defendants.

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Case No. 1:20-cv-456

Hon. Andrea R. Wood

PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

AND INCORPORATED MEMORANDUM OF LAW

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Table of Contents

Page

I. INTRODUCTION ...............................................................................................................1

II. FACTUAL STATEMENT ..................................................................................................3

A. The Demutualization of Members Proceeds Under Illinois Law ........................... 4

B. The Stand-By Purchaser ......................................................................................... 7

C. The Offering and Defendants’ Subsequent Reward ............................................... 9

III. ARGUMENT ....................................................................................................................10

A. Illinois’ 30-day Statute of Limitations Under Its Demutualization Statute Does

Not Preclude Action.............................................................................................. 10

B. Plaintiff’s Claims Fall Well Outside the Illinois Review Law ............................. 12

1. Defendants Misconstrue Plaintiff’s Claims, in a Misplaced Effort to

Invoke the Illinois Review Law................................................................ 12

2. Ordower and Ormond Establish that Plaintiff’s Claims Should Proceed. 16

3. Defendants’ Authorities are Inapposite .................................................... 17

C. Defendants Breached Their Fiduciary Duties To Members And Their Misconduct

Is Not Protected By The Business Judgment Rule ............................................... 19

D. Plaintiff Has Pled a Breach of Contract Claim ..................................................... 23

E. Plaintiff Properly Pled Unjust Enrichment ........................................................... 24

F. Plaintiff Has Properly Alleged that Defendants Owed Plaintiff Certain Fiduciary

Duties to Plaintiff and the Class............................................................................ 25

IV. CONCLUSION..................................................................................................................25

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Table of Authorities

Cases

Andrews v. Equitable Life Assurance Soc’y, 124 F.2d 788 (7th Cir. 1941) ................................. 21

Babbitt Municipalities, Inc. v. Health Care Serv. Corp., 64 N.E.3d 1178 (Ill. App. Ct. 2016) ... 22

Cleary v. Philip Morris Inc., 656 F.3d 511 (7th Cir. 2011).......................................................... 25

Collins v. Baylor, 302 F. Supp. 408 (N.D. Ill. 1969).................................................................... 15

Dougherty v. Carver Fed. Sav. Bank, 112 F.3d 613 (2d Cir. 1997) ............................................. 16

Dryden v. Sun Life Assur. Co. of Canada, 737 F. Supp. 1058 (S.D. Ind. 1989) .......................... 16

Fiala v. Metropolitan Life Ins. Co., 776 N.Y.S. 2d 29 (2004).......................................... 18, 19, 21

Flanagan v. Bernstein, No. 93 C 1498, 1996 WL 84184 (N.D. Ill. 1996) ................................... 22

Garden City Employees' Ret. Sys. v. Anixter Int'l, Inc., No. 09-CV-5641,

2011 WL 1303387 (N.D. Ill. Mar. 31, 2011).............................................................................. 7

Heritage Healthcare Servs., Inc. v. Beacon Mut. Ins. Co., No. 02-7016,

2004 WL 253547 (R.I. Super. Jan. 21, 2004) ........................................................................... 20

Howerton v. Prudential Ins. Co., 2012 IL App (1st) 110154 ....................................................... 18

Lubin v. Equitable Life Assurance Soc’y, 61 N.E.2d 753 (Ill. App. Ct. 1945)............................. 21

M.Y. Taxicab, Inc. v. Shoenberger, 238 F. Supp. 2d 994 (N.D. Ill. 2002) ................................... 19

Mihelic v. Will County, Ill., 826 F. Supp. 2d 1104 (N.D. Ill. 2011) ............................................. 11

Monarch Gems v. Malca-Amit USA, L.L.C., 2005 WL 1206426 (N.D. Ill. 2005) ....................... 21

Ordower v. Office of Thrift Supervision, 999 F.2d 1183 (7th Cir.1993) .................... 16, 17, 18, 23

Ormond v. Anthem, Inc. (“Ormond I”), No. 05-cv-1908-DFH-TAB,

2008 WL 906157 (S.D. Ind. Mar. 31, 2008)...................................................................... passim

Ormond v. Anthem, Inc. (“Ormond II”), 799 F. Supp. 2d. 910 (S.D. Ind. 2011) .................. passim

Rieff v. Evans, 630 N.W.2d 278 (Iowa 2001) ............................................................................... 20

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Sadler v. Retail Props. of Am., No. 12 C 5882, 2014 WL 2598804 (N.D. Ill. June 10, 2014)..... 20

Shah v. Metropolitan Life Ins. Co., 2003 WL 728869 (N.Y. Sup. Ct. Feb. 21, 2003) ................. 18

Sherman v. Ryan, 911 N.E.2d 378 (Ill. App. Ct. 2009) ................................................................ 22

St. Paul Fire & Marine Ins. Co. v. Great Lakes Turnings, Ltd.,

774 F. Supp. 485 (N.D. Ill. 1991) ............................................................................................. 21

Tierney v. John Hancock Mut. Life Ins. Co., 791 N.E.2d 925 (Mass. 2003)................................ 18

Wade v. Kessler Institute, 778 A.2d 580 (N.J. Super. A.D. 2001) ............................................... 24

Wilson v. Career Educ. Corp., 729 F.3d 665 (7th Cir. 2013)....................................................... 24

Wright v. Prudential Ins. Co. of Am., 285 F. Supp. 2d 515 (D.N.J. 2003) ................................... 18

Rules

Rule 12............................................................................................................................................ 4

Rule 50.......................................................................................................................................... 22

Rule 56.......................................................................................................................................... 22

Code

The Illinois Insurance Code ....................................................................................................... 4, 6

215 ILCS 5/59.1.............................................................................................................................. 4

215 ILCS 5/59.1(6)(c)(i)................................................................................................................. 5

215 ILCS 5/59.1(6)(e)..................................................................................................................... 6

215 ILCS 5/59.1(15) ............................................................................................................... 10, 11

215 ILCS 5/59.6 (i)......................................................................................................................... 5

735 ILCS 5/3-107(a)..................................................................................................................... 19

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I. INTRODUCTION

While the process of converting a mutual insurance company to a public stock company

can be complicated, Plaintiff’s claims here are simple and straightforward. Plaintiff and the Class

each have or had an in-force insurance policy or a master policy under a group insurance policy

with Fidelity Life Association, which also provided them with membership interests in Members

Mutual Holding Company (“Members Mutual”). As members of Members Mutual, they not only

had rights as insureds, but as its owners as well, including the right to vote in the election of

directors.

Defendants contend that Members’ Board of Directors adopted a plan to demutualize1to

increase its “access to capital.” To read Defendants’ brief, one would think that Plaintiff

suggested that the demutualization concept itself is unlawful. That is simply not true and

contrary to the well-pled facts of his Complaint. What is at issue is that at the conclusion of this

demutualization, the policyholders’ rights would be extinguished while Defendants took control

of the newly formed company, Vericity, Inc. (“Vericity”), and, shortly after, pilfered millions of

dollars from it for their own benefit. Indeed, after the dust settled, Vericity’s Board issued a

special dividend that directed nearly $85 million of Vericity’s surplus to Defendants.

Even more egregiously, a number of the Individual Defendants were rewarded with an

equity stake in the stand-by purchaser, Apex Holdco L.P. (“Apex”) for handing control of

Vericity over to it—a lavish benefit not shared with Plaintiff or the Class—and certain

Defendants were awarded directorships in the newly formed Vericity. Defendants omit this fact

when they try and lump the members together with Vericity’s directors, officers and employees

as 23.5% owners of the Company.

1 The Second Amended and Restated Members Mutual Holding Company Plan Of Conversion From

Mutual Holding Company To Stock Form, Dkt. No. 33 at Ex. 4, is referred to herein as the “the Plan.”

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Defendants attempt to legitimize their machinations by claiming that they are protected

by the Illinois demutualization laws and the Illinois Department of Insurance’s (the

“Department”) approval of the transaction. This is not the case. First, the statute’s 30-day

limitations period does not apply to Plaintiff’s claims because he is not challenging the validity

of the Departments’ administrative ruling. Alternatively, even if it did apply, the abbreviated

limitations period should be equitably tolled here. Second, Plaintiff’s claims include conduct that

occurred on or around December 9, 2019—well after the purported limitations period expired,

making it impossible for him, or any other Class member, to bring such a claim. Third,

Defendants’ position has no legal basis because it runs afoul of the Illinois State Constitution and

would abridge Plaintiff’s right to a judicial remedy that the legislature did not and cannot

unreasonably constrain. Finally, Plaintiff seeks to remedy Defendants’ unlawful conduct, which,

separate and apart from the Plan approved by the Department, arises from events that were never

subject to the Department’s review, including misconduct that took place after the Department’s

approval. For instance, the plan documents failed to describe the director equity incentive

program, nor did it specify or explain the special dividend.

Not only do Defendants try to skirt the demutualization law, they seek to sidestep

blackletter law establishing that the Individual Defendants owe Plaintiff and the Class fiduciary

duties in connection with a transaction affecting their ownership rights in the company. The

fiduciary duties owed to Plaintiff and the Class, however, do not end there and include Vericity

and Members Mutual. While it is accurate that Plaintiff and the Class members had a contractual

relationship with these entities, when Vericity and Members Mutual moved to alter and, in some

cases, extinguish, their ownership rights, these extracontractual duties were triggered.

Lastly, Defendants’ tortured construction of the claims still does not bring them into the

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ambit of the business judgment rule. Plaintiff contends that Vericity’s and the Individual

Defendants’ misconduct was a breach of their fiduciary duties of due care, loyalty, and good

faith and fair dealing owed to the Plaintiff and the Class. At this stage of the litigation, this is

sufficient to rebut the presumptive application of the rule. Nevertheless, even if Defendants’

actions here were within their discretion as directors, which they were not, the business judgment

rule would only protect them if they acted with adequate information and based on adequate

consideration. With respect to each member’s subscription rights, Defendants relied on a paltry,

four-page actuarial opinion. Further, with respect to the Apex equity incentive plan and the

special dividend, there is no indication that any adviser gave Defendants any advice concerning

the propriety of each or whether they constituted a conflict of interest. For these reasons, and

those explained below, Defendants’ motion to dismiss should be denied.

II. FACTUAL STATEMENT

Defendant Members Mutual was a mutual insurance holding company organized under

the laws of Illinois. ¶¶ 1, 17.2In July 2018, Members Mutual’s Board of Directors approved the

first version of the Plan to convert from a mutual insurance company to a stock insurance

company (i.e., “demutualization”). ¶43. After this process was complete, Members Mutual

would become a wholly-owned subsidiary of Defendant Vericity. Id. Indeed, the stated purpose

of this conversion was to increase Members Mutual’s “access to capital in order to pursue

increased marketing, acquisitions and organic growth of distribution and sales of life insurance”

to certain markets, see Ex. A at 94 (Prospectus filed June 20, 2019 (“Prospectus”))3but a

significant portion of that capital was handed out to Vericity’s officers and directors and a third2 All citations to “¶ __” refer to the Complaint. Dkt. No. 1.

3 The June 20, 2019 Prospectus attached to Defendants’ Memorandum of Law is only 40 pages. See Dkt.

No. 33 at A. For completeness sake, Plaintiff is attaching the entire Prospectus which is 215 pages.

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party private equity firm. This was a boon to Vericity’s insiders and its new majority

stakeholder, Apex, but left Members’ policyholders sitting on the wrong side of the deal with no

stake in the new company and excluded from generous payouts. As described in more detail

below, Defendants were able to garner enough votes from policyholders and gain regulatory

approval of the conversion by camouflaging the true nature and intent of the transaction.

A. The Demutualization of Members Proceeds Under Illinois Law

“A mutual insurance company is owned by its member-policyholders, so a

demutualization transaction effectively transfers valuable ownership rights from the

policyholders to a new set of shareholders in a stock company.” Ormond v. Anthem, Inc.

(“Ormond I”), No. 05-cv-1908-DFH-TAB, 2008 WL 906157, at *2 (S.D. Ind. Mar. 31, 2008)

(denying Rule 12 motion over putative class claims stemming from demutualization)4; see

Prospectus at 6 (stating “[l]ike stockholders, the members have certain rights with respect to

Members Mutual...”). Plaintiff and the putative Class were policyholders of Members Mutual at

the time of the demutualization. ¶¶ 14, 83.

The Illinois Insurance Code (“Code”) sets forth the requirements for completing a

demutualization. ¶ 37 (citing 215 ILCS 5/59.1). The Code required that Members Mutual

provide the policyholders subscription rights, without payment, to purchase a portion of the

capital stock of the stock company or, alternatively, a portion of a corporation owned by the

mutual company for purposes of acquiring or holding all of the converted company’s stock or a

stock insurance company into which the mutual company will be merged. ¶ 37; 215 ILCS

4 At summary judgment the Ormond Court reaffirmed the equivalence of policyholders and stockholders

stating that “[m]utual insurance companies are owned by their policyholders (i.e. members), who like

garden-variety shareholders, have voting rights and share in the company’s financial success or failure.”

Ormond v. Anthem, Inc. (“Ormond II”), 799 F. Supp. 2d. 910, 913 (S.D. Ind. 2011) (denying summary

judgment on breach of duty claims in connection with demutualization.).

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5/59.1(6)(c)(i). These subscription rights are to be allocated to eligible members through a fair

and equitable formula, which may take into account how different classes of policies of the

eligible members contributed to the mutual company’s surplus. Id.; 215 ILCS 5/59.1(6)(c)(ii).

Notably, under 215 ILCS 5/59.6(i), Illinois law only prohibits individual purchases of shares that

exceed 5% of the total offering, which here would be 743,750 (5% of 14,875,000) but otherwise

did not restrict Members Mutual from allowing policyholders to buy additional shares of

Vericity up to this ceiling. As part of its plan of conversion, Members Mutual offered “between

14,875,000 and 20,125,000 shares of common stock at a price of $10 per share on a first priority

basis to eligible members and second to the directors and officers of Members,” with the goal of

raising at least $148 million through the offering. Prospectus at 6, 9. The Company noted that the

demutualization would not be completed, however, if Members Mutual did not sell at least

14,875,000 shares in the subscription offering. ¶48.

Knowing this, Members Mutual still restricted how much each policyholder, including

Plaintiff, could purchase to no less than 25 shares but up to their “individual maximum purchase

limitations.” Prospectus at 1. This purchase limit consisted of a “Fixed Component” of 100

subscription rights to each policyholder regardless of the number of qualifying policies they

owned and, in some instances—but not all—a “Variable Component” that considered past and

future contributions to Fidelity Life’s surplus. ¶67; Prospectus at 5. Either way, in most, if not

all, instances, the “individual maximum purchase limit” concocted by Defendants was set well

below the statutory cap for individual purchases established by Illinois law. See ¶ 66 (citing 215

ILCS 5/59.6 (i)). In addition to what the policyholders may have purchased under their

allotments, as of June 2019, Members Mutual’s directors and officers indicated their intention to

purchase approximately 2,123,675 shares—a 14% stake in Vericity. ¶56.

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In the event that the stock purchases of the policyholders (first priority) and the directors

and officers (second priority) fell below 20,125,000, Members Mutual intended to “offer eligible

employees under the Employee Bonus Program and may offer shares [in its sole discretion to]

other potential investors in what [was] refer[ed] to as the community offering.” Prospectus at 7,

97 (emphasis added). A community offering is not discretionary, but rather a requirement of

Illinois’ Code: “any shares of capital stock not subscribed to by eligible members exercising

subscription rights...shall be sold in a public offering through an underwriter.” 215 ILCS

5/59.1(6)(e) (emphasis added).5 Far different from the member offering, the only limitation

placed on purchases in the community offering was the 5% cap mandated by Illinois law, or

743,750 shares. See Dkt. No. 33 at Ex. 4 (“the Plan”)” at 12).

At bottom, the Prospectus made clear that Members Mutual had the “right in [its]

absolute discretion...to determine which persons and which subscriptions and orders in this

offering meet the criteria provided in the plan of conversion for eligibility to purchase shares of

common stock and the number of shares eligible for purchase by any person.” Prospectus at 10.

After the conversion plan elements were developed by Defendants, in a letter from

Vericity, policyholders were advised that they had a priority right to subscribe for the

Company’s shares before it became available to other offering participants. See Exhibit B (Ex.

99.3 to Vericity’s June 4, 2019, Form S-1, General form for registration of securities under the

5 The statutory section includes the following additional language: “If the number of shares of capital

stock not subscribed by eligible members is so small or the additional time or expense required for a

public offering of those shares would be otherwise unwarranted under the circumstances, the plan of

conversion may provide for the purchase of the unsubscribed shares by a private placement or other

alternative method approved by the Director that is fair and equitable to the eligible members.” 215 ILCS

5/59.1(6)(e). There were more than 11 million shares to be sold after the initial offering, certainly, that

would not qualify as “so small” to forgo the community offering; likewise there is no evidence that time

and expense precluded a public offering either. It is simply unknown, absent discovery, if or how many

shares were made part of any public offering.

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Securities Act of 1933).6 While the letter was accompanied by copies of the flawed Prospectus

and Plan, it was devoid of any plan features and stated in bold writing: “Your Board of

Directors urges you to vote ‘FOR’ approval of the Plan and ‘FOR’ the approval of the

Restated Articles.” Id. The letter also stated that the conversion will not result in any changes

to the recipient’s life insurance policies and, in two separate places noted that he or she was not

obligated to purchase shares in the offering, but omitted other critical information including the

fact that failure to purchase shares could result in the policyholders losing control of the

Company and that a third-party purchaser was waiting in the wings to scoop up a majority of

Vericity’s shares.

B. The Stand-By Purchaser

With the “individual maximum purchase limits” in place and regardless of the

requirement that any unsubscribed stock be sold through a public offering, Members Mutual

entered into a standby purchase agreement with Apex, an affiliate of J.C. Flowers IV L.P., a

private equity fund advised by J.C. Flowers & Co., LLC., a private investment firm (“Hedge

Fund”). ¶ 50. According to the Prospectus, in fulfilling its standby purchase commitment, “the

standby purchaser [would] acquire a majority of our shares issued in the offerings if the number

of shares subscribed for in the subscription offering, together with any subscriptions accepted in

the community offering, total fewer than 7,437,500 shares.” Prospectus at 97. Notwithstanding,

even if the subscription offering met the minimum sales (14 million), Members Mutual gave

Apex the opportunity to “acquire [the] majority of our outstanding shares...by purchasing

additional shares above the offering minimum [14,875,000]....” Prospectus at 123. At bottom,

6 Garden City Employees' Ret. Sys. v. Anixter Int'l, Inc., No. 09-CV-5641, 2011 WL 1303387, at *12 (N.D. Ill. Mar.

31, 2011) (recognizing that “judicial notice may be taken of the contents of public record disclosure documents filed

with the SEC if the facts sought to be noticed are not subject to dispute.”)

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the plan was for Members Mutual to cede Vericity to Apex and the Hedge Fund.

Despite this intention, the Prospectus, nonetheless, warned that Apex’s absolute control

was a “risk” to investors that “could result in a significant or material adverse effect on [the]

business.” ¶71; Prospectus at 13, 27. The Prospectus further warned that “if” (not when) the

stand-by purchaser acquired more than 50% of Vericity’s voting power Vericity would avail

itself of the “controlled company” exception to the NASDAQ rules so that it would not have to

comply with certain corporate governance requirements, including the requirement that a

majority of the board be independent directors, or that the compensation committee, the

nominating committee, and corporate governance committee be composed of entirely

independent directors. Id.; Prospectus at 27. The stand-by purchaser would have the right to

designate a majority of the members of Vericity’s board and “be able to approve most corporate

actions requiring stockholder approval by written consent without a meeting of stockholders.”

¶¶72-73. The significance of this cannot be overstated and the adverse impact this would have on

members was laid bare in, among other places, Apex’s Form 13D filed with the SEC on August

9, 2019. Exhibit C (Apex’s Form 13D filed with the SEC on August 9, 2019).

Through its consolidation of power, Apex’s Form 13D reveals that Apex (which is

essentially controlled by one person—J. Christopher Flowers) now has the authority to monitor

the financial condition of Vericity, the value and price of its common stock, and other available

investment opportunities available to it. While providing Apex with access to this information

alone is not problematic, depending on its impressions and what is best for Apex—not the

policyholders or minority shareholders—it is given unfettered power in “(i) proposing measures

which they believe would enhance shareholder value, (ii) purchasing additional Common Stock

or other securities of Vericity (subject to any applicable restrictions in the Standby Purchase

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Agreement), (iii) selling some or all of any securities of Vericity held by the Reporting Persons

(subject to any applicable restrictions in the Standby Purchase Agreement), (iv) proposing,

whether alone or with others, a transaction that would result in a change of control of Vericity, or

(v) otherwise changing their intention with respect to any of the matters referred to in this Item

4.” Id. at 12. This shift of focus from policyholder value to shareholder value was not

conspicuously identified in the materials presented to policyholders voting on whether to

approve the conversion plan.

Members Mutual also agreed that Apex’s representation on Vericity’s new board of

directors would favor Apex and include the Hedge Fund’s Managing Director, Eric Rahe, Vice

President, Calvin Dong, as well as an employee of a portfolio company of the Hedge Fund.

Prospectus at 121. Lastly, Members Mutual agreed that Apex, as the standby purchaser, could

grant awards of a Class B stock to certain employees, directors and other service providers of

Apex and/or Vericity. ¶48; Prospectus at 11. These Class B units were non-voting profits

interests in Apex. Id. Approximately 20% of these Class B units would be issued directly to

Vericity’s directors and advisory. Prospectus at 130. None of these Class B profit interests would

be offered to the policyholder members. ¶63.

C. The Offering and the Defendants’ Subsequent Reward

The subscription offering was made to the members (first priority) using the “individual

maximum purchase limits” for each policyholder. For Plaintiff, his limit was set at 124 shares

(100 “Fixed Component” and 24 “Variable Component”) at $10, a total $1,240. ¶14. Plaintiff

raised his desire to purchase additional shares with the Board of Directors, but his request was

rejected outright. Id. The directors (second priority) purchased their full allotted 2,123,675

shares. It is unclear what—if any—shares were offered or sold as part of the “Employee Bonus

Program” or a “community offering.” Prospectus at 7. In total, 3,501,648 shares were sold as

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part of the initial offering. Vericity, Inc., Aug. 7, 2019, Form 8-K. Members Mutual then

delivered 11,373,352 shares to Apex, a 76.5% controlling interest in the company, which

triggered all of the risk factors described in the Prospectus. See ¶ 61. By limiting subscription

rights, Defendants engineered a transaction that delivered complete control over Vericity to one

investor.

On the first day the Vericity share price was published, its price increased 20% to $12.

¶ 78. By August 20, 2019, the share price reached a high of $24. ¶79. Then on November 6,

2019, Vericity announced a special one-time cash distribution of $6.25 per share to common

stock holders, which was paid on December 9, 2019. ¶ 81. From this one-time dividend, Apex

(and the Hedge Fund) received more than $71 million, the officers and directors got more than

$13 million collectively, while, by comparison, Plaintiff got $775. Members Mutual’s stated

purpose of the demutualization as “access to capital” really meant a windfall to the Directors,

Apex, and the Hedge Fund.

III. ARGUMENT

A. Illinois’ 30-day Statute of Limitations Under Its Demutualization Statute

Does Not Preclude Action

The 30-day limitations period in Illinois’ demutualization statute does not apply to

Plaintiff’s claims. To the extent that it does, not only does equity demand that it be tolled, but it

surely does not preclude Plaintiff’s common law claims. 215 ILCS 5/59.1(15) states that “[a]ny

action challenging the validity of or arising out of acts taken or proposed to be taken under [the

demutualization statute] shall be commenced within 30 days after the effective date of the plan.”

Here, the issue is neither the final approval of the Plan by the Department nor that

Plaintiff was limited in his right to buy additional stock under that Plan. Rather, it is Defendants’

conduct surrounding the improper deal Vericity entered into when it consummated the Stand-by

Purchaser Agreement with Apex. ¶ 11. Plaintiff alleges that despite the Prospectus

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acknowledging the possibility of the stand-by purchaser acquiring a majority of the shares,

Defendants’ conduct in restricting Plaintiff and Class members and shifting the company away

from the members and into the hands of Apex was actually Defendants’ desired outcome, rather

than the just a “risk” as described in the Prospectus. ¶¶ 6-9, 68, 97-98. None of Defendants’ case

law is applicable as Plaintiff is not challenging the validity of the administrative ruling by the

Department. Nor do Plaintiff’s claims arise out of acts taken or proposed to be taken under the

demutualization statute because the acts by Defendants that are at issue were not accurately

reflected in the Plan in the first place. Thus, the limitation in 215 ILCS 5/59.1(15) does not apply

here.

Even if the 30-day deadline were to apply, which it does not, principles of equity require

tolling here. See Mihelic v. Will County, Ill., 826 F. Supp. 2d 1104, 1113 (N.D. Ill. 2011) (“a

plaintiff who fails to sue within the limitations period, ‘can get an extension of time within which

to sue if it would have been unreasonable to expect [him] to sue earlier.’”) Defendants can point

to no text, context, or legislative history indicating that the Illinois legislature intended 215 ILCS

5/59.1(15) to be anything beyond a standard time bar, and certainly not a jurisdictional statute of

limitations as Defendants suggest.

As Defendants admit, 30 days is a short limitations period. See Defs. Mem. at 9. While

Plaintiff attempted to, and was denied, the opportunity to purchase more stock with the board of

directors in July 2019, it was not until December 9, 2019 when Vericity paid the special one-time

cash distribution that Plaintiff was unfairly excluded from that Plaintiff was on notice of the

nature of the damages. ¶¶ 14, 81. As such, it would have been impossible for Plaintiff to file a

civil action within 30 days of August 6, 2019 (effective date of the plan) because Plaintiff could

not have reasonably (or even possibly) known the nature of his injuries.

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Defendants’ position is also untenable because it runs afoul of the Illinois State

Constitution which specifically provides Plaintiff a right to judicial remedy that the legislature

did not and cannot unreasonably constrain. See Ill. Const. art. I, § 12 (“Every person shall find a

certain remedy in the laws for all injuries and wrongs which he receives to his ... property. . . .

He shall obtain justice by law, freely, completely, and promptly.”) Regardless, the 30-day

limitation does not preclude Plaintiff’s various common law claims for breach of fiduciary duty,

breach of contract, unjust enrichment, and negligence. See Ormond II, 799 F. Supp. 2d at 923

(Indiana’s approval of demutualization plan and plaintiffs’ “failure to appeal or otherwise

challenge that approval within 30 days does not bar [their] common law claims, so long as the

nature of the damages or the Defendants' conduct causing those damages could not have been

discovered prior to IDOI approval.”).

Lastly, Defendants offer no support for the contention that the entire complaint should be

dismissed with prejudice merely because of the “finality” of the transaction. This, and whether

ownership interests have shifted in the ten months during which Vericity has been public, is

irrelevant and not mutually exclusive with the issue of whether Defendants should face the

consequences of their unlawful conduct. In essence, Plaintiff does not seek to “unscramble” the

proverbial egg but rather claims that Defendants owe parts of the egg (that it unfairly scrambled)

to Plaintiff and the Class.

B. Plaintiff’s Claims Fall Well Outside the Illinois Review Law

1. Defendants Misconstrue Plaintiff’s Claims, in a Misplaced Effort to

Invoke the Illinois Review Law

Defendants’ arguments concerning the Illinois Review Law proceed from a false premise,

namely, that “Plaintiff seeks to overturn a decision of an Illinois agency.” Defs. Mem. at 10. To

the contrary, and explained above, Plaintiff is not seeking to overturn the regulatory approval for

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the demutualization plan, nor is he launching a “collateral attack” (id.) on that approval. Instead,

Plaintiff seeks to remedy Defendants’ unlawful conduct, which, separate and apart from the Plan

approved by the Department, arises from events that were never subject to the Department’s

review, including misconduct that took place after the Department’s approval.

While Defendants repeatedly cite the Prospectus in their brief, they gloss over the Plan

itself, which they acknowledge is the document actually subject to review by the Department.

See Defs. Mem. at 5; see also the Plan at 9 (describing the process for regulatory approvals,

including the preparation and filing on an application for approval of the demutualization plan

with Illinois Director, and, separately, the preparation and filing of Registration Statement,

including the Prospectus, with the SEC). Defendants’ focus on the Prospectus, as opposed to the

actual Plan, is unsurprising in light of the fact that the alleged misconduct here is in no way

disclosed or excused by the language of the Plan itself subject to review by the Department.

Here, Plaintiff alleges that Defendants undertook a course of conduct where they

(1) represented to the Department and the members that demutualization was desirable, if not

imperative, in order for the company to “increase its access to capital in order to pursue

increased marketing, acquisitions and organic growth of distribution and sales of life insurance to

the middle market” (Plan at 2); (2) took steps undisclosed to the Department that put a private

equity firm, and Vericity’s officers, directors, and management in a position to reap tens of

millions of dollars from the transaction; and (3) then announced and paid a special dividend that

by and large enriched others at the expense of Plaintiff and proposed Class. Defendants fail to

explain how this course of alleged misconduct was considered, let alone approved, by the

Department.

Two additional key considerations about the Plan submitted to the Department reveal the

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flaws with Defendants’ arguments. First, the Plan does not describe the director equity incentive

program. As explained above, under this program, Vericity’s management team, directors, and

advisory board members acquired an ownership interest in the stand-by purchaser, Apex

Holdco—thus reaping additional benefits not available to Members Mutual’s members. ¶ 58. As

the Prospectus explains, “the general partner of the stand-by purchaser may grant awards of

Class B units to employees, directors and other service providers of the stand-by purchaser

and/or Vericity.” ¶ 58 (quoting Prospectus at 11). These Class B units “are non-voting profits

interests in the stand-by purchaser that entitle the holders thereof to participate in the

appreciation in the value of the stand-by purchaser above an applicable threshold and to thereby

share in our future growth.”7 Prospectus at 11; see also ¶ 59. Through the equity incentive

program, which was “to be established under the terms of the amended and restated limited

partnership agreement of the standby purchaser,” (i.e., not the demutualization Plan subject to

view by the Department), Prospectus at 11, Defendants reserved a large volume of Class B

shares—representing 20.6% of the fully diluted units of Apex Holdco—for issuance to

employees, directors, advisory board members and other service providers of Vericity. ¶ 63. At

the same time, the former members of Members Mutual—Plaintiff and the Class—were not

afforded any Class B units or other equity in Apex Holdco. Id.

Second, the Plan does not specify or describe the special dividend, which was paid

months after the Department’s approval. This special, one-time dividend of $6.25 resulted in

Apex and the individual Defendants receiving tens of millions of dollars, while excluding

Plaintiff and the proposed Class from the vast majority of the funds made available from

7 Any suggestion by Defendants, in their reply brief, that the special dividend reflects “future growth”

would raise factual issues, given the proximity of the payment of that dividend (December 2019) to the

timing of approval of the demutualization (June 2019).

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Vericity’s one-time cash distribution paid out on December 9, 2019. ¶ 81.

Vericity’s letter to policyholder’s (Exhibit B) highlights the extent to which the

Department’s approval should not shield Defendants from liability. That letter “urged”

policyholders to approve the Plan, while twice noting the lack of any obligation to purchase

shares. Especially when viewed within the totality of Defendants’ alleged misconduct, the

communication was deceptive in its omission of critical information, including the fact that the

failure to purchase shares would result in the policyholders losing control of the company, a

third-party purchaser was prepared to acquire a majority of Vericity’s shares, and the same thirdparty and certain individuals (but not Plaintiff and the Class) would receive many millions of

dollars through a special dividend to be paid within a few short months of the Plan’s approval by

the policyholders. See Exhibit B.

In short, the demutualization “transfer[ed] valuable ownership rights from the

policyholders” and, overwhelmingly, to Apex and a small, select group of directors, officers, and

managers. See Ormond I, 2008 WL 906157, at *2; see also ¶ 10 (approximately $84 million out

of $93 million of the aggregate dividends were paid to the board of directors and Apex). Notably,

policyholders, in some cases over the course of decades, had contributed to the surplus of funds

that became available through the demutualization.8 With bitter irony, what was supposedly the

8 Defendants’ assertion that members should not expect to share in the “profits” of a mutual company, see

Defs. Mem. at 3, misses the point of the courts’ reasoning as it would relate to Plaintiff’s claims here. For

example, in Collins v. Baylor, 302 F. Supp. 408 (N.D. Ill. 1969), the court explained that dividends issued

to members of a mutual insurance company reflect a “return to policyholders of the unearned, that is,

unused, portion of the premiums paid in.” Id. at 411. Likewise, in the context of a mutual insurance

company, policyholders create the surplus, “by paying more for [their] insurance in advance than it

should actually cost.” Dryden v. Sun Life Assur. Co. of Canada, 737 F. Supp. 1058, 1063 (S.D. Ind. 1989)

(citation and internal quotation marks omitted). Defendants’ implied contention that they should be

entitled, as a matter of law, to amass significant funds while structured as a mutual company and then

distribute those funds to themselves after the conversion reveals why Plaintiff’s claims should go forward,

and why, at a minimum, discovery is necessary.

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means to raise capital to benefit the member policyholders turned out to be nothing more than an

effort to shift capital into the hands of private equity and the individual Defendants, to the

detriment Plaintiff and the Class.

2. Ordower and Ormond Establish that Plaintiff’s Claims Should

Proceed

Defendants’ brief suggests, in effect, that they should be afforded immunity for any

conduct related to the demutualization by virtue of the Department’s approval. That is simply not

the case under controlling Seventh Circuit law.

In Ordower v. Office of Thrift Supervision, 999 F.2d 1183 (7th Cir.1993), a bank had

converted from a mutual to a stock form. Id. at 1185. Plaintiffs alleged both that the deal was

undervalued, as it failed to sufficiently account for the company’s real estate interests. Although

the Seventh Circuit held that it could not provide relief for claims challenging the valuation of

the company by the Office of Thrift Supervision, id. at 1185-86, the Court allowed Plaintiff’s

other claims to proceed and held:

That the [Office of Thrift Supervision] has found the substance of a transaction in

compliance with federal law—which is all the OTS’s approval establishes—does

not relieve the bank's managers of the duty to tell the truth when asking the

depositors to approve the transaction. The depositors are free to turn down the

managers’ proposal. A district court accordingly may consider whether the

materials describing the transaction and soliciting that approval were complete

and accurate.

Id. at 1188 (emphasis added); see also Dougherty v. Carver Fed. Sav. Bank, 112 F.3d 613, 620

(2d Cir. 1997) (citing Ordower and explaining that the regulatory approval of the mutual-tostock conversion at issue “does not lift from the shoulders” of the defendant company, its

managers, and agents “the obligation to conduct the sale of its stock in an honest and

straightforward manner so that investors are not mislead”). As in Ordower, Plaintiff’s allegations

do not arise from the issue of valuation, but challenge, inter alia, the “completeness and

accuracy” of how Defendants described the transaction. Had Defendants been up front about

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how the demutualization process would serve as a vehicle for transferring company assets to a

private equity and a few individuals who profited handsomely from the arrangement, the

outcome of the members’ vote would almost certainly have been different.

In Ormond I the court applied Ordower to a similar set of claims as Plaintiff’s, and

rejected dismissal of most claims, including for breach of fiduciary duty and breach of contract.

The court explained: “plaintiffs are not challenging the validity of the [Department’s] order

approving the demutualization of Anthem...” Ormond I, 2008 WL 906157, at *23. The same is

the case here. Plaintiff does not seek to set aside the Department’s approval. The Ormond court

further explained that “there is also no statutory scheme through which people aggrieved by

events that occur subsequent to the Commissioner’s order can seek redress,” and cited Ordower

in support of its decision to deny the motion to dismiss plaintiffs’ claims for breach of contract

and breach of fiduciary duties. Id. Ormond is thus on all fours with the conduct here. Tellingly,

Defendants acknowledge that Ormond allowed claims to go forward based conduct that occurred

post-approval by the Indiana agency, yet Defendants fail to ever mention that the special

dividend, paid out months after the Department approved by the Plan. See Defs. Mem. at 15 n.3.

In so doing, they fail to meaningfully distinguish Ormond.

9

3. Defendants’ Authorities are Inapposite

Defendants’ remaining authorities related to administrative law principles only further

reveal why Plaintiff’s claims should proceed. As to other demutualization cases, Defendants cite

9 Defendants attempt to assert that Ormond is factually distinguishable, noting that it involves events that

occurred after the demutualization plan was approved by the Indiana agency. See Defs. Mem. at 15 n.6;

see also Ormond I, 2008 WL 906157, at *23 (explaining that plaintiffs had alleged that changes were

made to proposed plan of conversion after many policyholders had already cast their votes and mailed in

their ballots). Here, Plaintiff’s allegations are similar, but even stronger on this point, as Plaintiff allege

Defendants announced and paid out a special dividend months after the Plan had been approved by the

Department and policyholders.

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a handful of cases that focus on claims that are plainly different from Plaintiff’s. Consistent with

Ordower, these cases stand for proposition that to the extent that plaintiffs take issue with the

valuation method and determination of the IPO price that was fully addressed by the agency,

such a claim may constitute a collateral attack on the Superintendent's decision. See Howerton v.

Prudential Ins. Co., 2012 IL App (1st) 110154, ¶ 29 (in suit arising under New Jersey law,

dismissing claims challenging the determination of the fair value to policyholders based on

issues plaintiffs’ counsel raised previously during public hearings concerning demutualization);

Tierney v. John Hancock Mut. Life Ins. Co., 791 N.E.2d 925, 933 (Mass. 2003) (finding that

plaintiffs’ contention that they should receive a premium above the IPO value set for the

demutualization had been addressed by the commissioner); Wright v. Prudential Ins. Co. of Am.,

285 F. Supp. 2d 515, 519 (D.N.J. 2003) (explaining that following a public hearing the

Commissioner had issued a lengthy opinion “address[ing] each of the concerns that had been

raised by commenters at the hearing and affirmed that none of them prevented the Plan from

being worthy of approval”); Shah v. Metropolitan Life Ins. Co., 2003 WL 728869 (N.Y. Sup. Ct.

Feb. 21, 2003) (finding that plaintiffs merely “disagree[d] with the method of valuation and

determination of the IPO price”). Thus, such cases raise issues not present here.

Defendants’ remaining authorities, while largely not on point, actually show why

Plaintiff’s claims should proceed. In Fiala, the court held that, with respect to certain claims,

defendants “have not established the preclusive effect of the [agency]’s determination,” and that

evidentiary issues concerning what the agency had been aware of in approving the

demutualization plan must be decided at the summary judgment stage of the proceedings. Fiala

v. Metropolitan Life Ins. Co., 776 N.Y.S. 2d 29, 31 (2004). Here, Defendants have offered

largely conclusory statements about what the Department was aware of and what it considered,

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and, indeed, largely side-step the critical document, the Plan itself, rendering summary judgment

the more appropriate procedural stage for resolving Defendants’ arguments.

As to Defendants’ contention that Plaintiff should be required to name the Department as

a Defendant, see 735 ILCS 5/3-107(a), the language of the statute makes clear that the agency is

not necessary or proper Defendant here. It provides that only “in any action to review any final

decision of an administrative agency” must the agency be a named party. Id. Because Plaintiff’s

claims arise from misconduct separate and apart from the Plan approved by the Department, this

is not such an action to “review” a final agency decision. Id. Defendant’s case law is consistent

with Plaintiff’s position. See M.Y. Taxicab, Inc. v. Shoenberger, 238 F. Supp. 2d 994, 996 (N.D.

Ill. 2002) (permitting claims separate from the merits of the agency decision to proceed).

C. Defendants Breached Their Fiduciary Duties To Members And Their

Misconduct Is Not Protected By The Business Judgment Rule

Defendants bafflingly contend that in developing and executing the plan to convert

Members Mutual to a stock insurance company and ceding control of it to a third-party

purchaser, they did not owe Plaintiff and the Class any fiduciary duties. It is not clear from their

brief whether Defendants are arguing that the Company did not owe the members a fiduciary

duty or that the Individual Defendants did not, see Def. Br. at 15-16, but either way, both

assertions are incorrect.

“A fiduciary relationship is shown when a party establishes facts showing an antecedent

relationship that gives rise to trust and confidence reposed in another.” Sadler v. Retail Props. of

Am., No. 12 C 5882, 2014 WL 2598804, at *17 (N.D. Ill. June 10, 2014) (internal quotations

omitted). In the relationship between a mutual insurer and a policyholder, the type of claim

dictates whether a fiduciary relationship exists. Ormond II, 799 F. Supp. 2d at 935 (citation

omitted). Where, as here, “the claims involve policyholders who are acting in their capacity as

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owners, courts generally treat policyholders as being entitled to the same fiduciary duty as owed

to stockholders.” Id.

First, it is blackletter law that Defendants Hemmings, Hohmann, Schact, Bynoe, Groot,

and Fibiger, as directors of Members Mutual before the conversion, owed fiduciary duties to

Plaintiff and the Class. See, e.g., Rieff v. Evans, 630 N.W.2d 278, 291 (Iowa 2001) (finding that a

mutual insurer’s “directors owe a fiduciary duty to its policyholders” in a de facto

demutualization); Heritage Healthcare Servs., Inc. v. Beacon Mut. Ins. Co., No. 02-7016, 2004

WL 253547, at *5 (R.I. Super. Jan. 21, 2004) (“the claims as alleged implicate the policyholders’

rights as owners rather than as insureds. As a result, Defendants owe a fiduciary duty to its

policyholders”). While sitting in their capacities as directors of Members Mutual, they conceived

and executed a plan of conversion that rewarded them with an equity stake in Apex and these

grants made to Vericity’s directors are not subject to forfeiture.10 Moreover, after the IPO

closed, Defendants Hemmings, Hohmann, and Schact came out the other side with directorships

in the newly-formed Vericity.

Second, not only did the Individual Defendants owe fiduciary duties to the members, but

Vericity (as well as its predecessor, Members Mutual) did as well. Defendants’ selective

reference to the contractual nature of the relationship between a policyholder and its insurer in

the Complaint, see Def. Br. at 16 (¶ 119), is taken out of context and misconstrues Plaintiff’s

allegations. Here, as in Ormond, Plaintiff and the Class had an equity interest in Members

Mutual that was inextricably tied to the insurance policy and its members could not divest

themselves of this interest other than by giving up this policy. See Ormond II, 799 F. Supp. 2d at

10 The grants of Class B units in the Apex equity incentive plan were provided to the named officers,

directors, and advisory board members at the end of the IPO in the following percentages: Hohmann,

5.00%; Harkensee, 1.75%; Campbell, 1.50%; Ashe, 1.00%; Hemmings, 0.80%; Perry, 0.25%; Schacht,

0.80%; Bynoe, 0.80%; Fibiger, 0.80%; and Groot, 0.80%.

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936. “Only the corporation could choose to excise the policyholder's equity interest from the

insurance contract and extinguish it through a demutualization; therefore, the interest was in

essence being held in trust by the corporation.” Id. Thus, through this position of trust, Vericity

and Members Mutual owed their members fiduciary duties. Id.

To the extent that Defendants are attempting to raise Illinois’ “economic loss doctrine” as

a bar to tort liability, this is also unavailing because “the relationship between [Defendants] and

its members was more than a garden-variety, arms-length contractual relationship.” Ormond II,

799 F. Supp. 2d at 937. Rather, Illinois law provides for exceptions to the economic loss rule

where, as here, “the tort committed by the defendant is based on an extracontractual duty.”

Monarch Gems v. Malca-Amit USA, L.L.C., 2005 WL 1206426, at *2 (N.D. Ill. 2005); see also

St. Paul Fire & Marine Ins. Co. v. Great Lakes Turnings, Ltd., 774 F. Supp. 485, 490 (N.D. Ill.

1991) (finding economic loss doctrine does not prohibit fiduciary duty claims).11

Finally, the business judgment rule does not protect Defendants here.12 The business

judgment rule creates “a presumption that in making a business decision the directors of a

corporation acted on an informed basis, in good faith and in the honest belief that the action

taken was in the best interests of the company.” Sherman v. Ryan, 911 N.E.2d 378, 389 (Ill.

11 Lubin v. Equitable Life Assurance Soc’y, 61 N.E.2d 753, 756 (Ill. App. Ct. 1945) and Andrews v.

Equitable Life Assurance Soc’y, 124 F.2d 788, 789 (7th Cir. 1941) are inapposite. Neither of those cases

implicate the holders’ extracontractual rights such as those here and instead are based on virtual identical

claims where policy holders are seeking their proportionate shares of a portion of undistributed surplus

funds. Defendants’ reliance on Fiala, 776 N.Y.S. 2d at 32 is equally unavailing and its holding contrary

to Illinois law, which recognizes mutual insurers as fiduciaries to their policyholders. See also Ormond II,

799 F. Supp. at 933 (recognizing Fiala as the minority view on whether an insurer is a fiduciary to its

policyholder).

12 As a threshold matter, Plaintiff does not concede that application of the business judgment rule should

be decided at this stage of the litigation. Courts have viewed it as an evidentiary presumption that “does

not come into play when testing the sufficiency of the pleadings; it is triggered, instead, when the

evidence is sufficiency-tested such as on a motion for summary judgment, Rule 56, or for judgment as a

matter of law, Rule 50.” Flanagan v. Bernstein, No. 93 C 1498, 1996 WL 84184, at *3 (N.D. Ill. 1996).

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App. Ct. 2009) (citation omitted). This presumption can be rebutted “by showing that the board

violated any one of its triad of fiduciary duties: due care, loyalty, or good faith.” Sherman, 911

N.E.2d at 390. Indeed, a director cannot avail itself of the business judgment protections where,

as here, allegations reveal that the company’s directors acted fraudulently, illegally, in bad faith,

while under a conflict of interest, or without due care and proper diligence. Babbitt

Municipalities, Inc. v. Health Care Serv. Corp., 64 N.E.3d 1178, 1190 (Ill. App. Ct. 2016).

In an attempt to invoke the business judgment rule, Defendants suggest that Plaintiff’s

claims are based solely on Individual Defendants’ “second- or third-priority right to purchase

shares in the demutualization” and that their purchase of 14% of the offering minimum was

permitted under Illinois law. See Def. Br. at 17. This distorts some of Plaintiff’s allegations, and

completely ignores the rest. First, Plaintiff contends that Vericity and the Individual Defendants

breached their fiduciary duties of due care, loyalty, and good faith and fair dealing owed to the

Plaintiff and the Class. Indeed, the process of how Apex was selected as the standby purchaser is

opaque at best, but one thing is clear, Apex took control of Vericity and the Individual

Defendants were paid handsomely for it. Plaintiff does not quibble with the fact that the

Individual Defendants eventually purchased shares in the subscription offering. Defendants

ignore the thrust of the allegations—that Plaintiff and the Class were arbitrarily constrained from

purchasing additional shares beyond their allotment and deprived of the financial benefits of

ownership in the new entity. This allowed Defendants to get what they wanted from the

beginning—to take control of Vericity from the members and hand it over to Apex. Second, a

number of the Individual Defendants were rewarded for this through awards of Class B equity

interests in Apex, which provided them—and not Class members—with a considerable, and

recurring, boost in compensation. Finally, after the conversion was completed, Vericity’s Board

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issued a special dividend that directed nearly $85 million of Vericity’s surplus to Defendants.13

These actions violated Illinois law and fall far outside of the protective standards of the business

judgment rule.

Even if Defendants’ actions here were within their discretion as directors, the business

judgment rule would only protect them if they acted with adequate information and based on

adequate consideration. With respect to each member’s subscription rights, Defendants relied on

a woefully inadequate, four-page actuarial opinion. With respect to the Apex equity incentive

plan and the special dividend, there is no indication that any adviser gave the Defendants any

advice concerning the propriety of each or whether they constituted a conflict of interest. This

was a glaring red flag that something was amiss, but there is no suggestion that Defendants ever

considered these issues or conducted any further investigation. The business judgment rule does

not permit directors to bury their heads in the sand, while simultaneously lining their own

pockets with Class B shares and newly minted directorships.

D. Plaintiff Has Pled a Breach of Contract Claim

Defendants ignore the law in arguing Plaintiff’s breach of contract claim does not exist.

Defendants are wrong. As the Ormond Court concluded, a defendant’s submission of the plan of

conversion to the members constitutes a contractual offer, under which they were entitled to

receive fair compensation in exchange for their membership interests. Ormond II, 799 F. Supp.

13 The misconduct alleged here, which involves bad faith and conflicts of interest, far exceeds the limited

conduct described in Ordower, 999 F.2d at 1186. In Ordower, the plaintiff’s chief complaint was that the

company assigned a low value to the stock, purportedly allowing managers and employees to pilfer the

shares ahead of depositors. Id. The court determined that the shares were valued properly. Id. Notably,

unlike here, some shares were sold on the open market, where a depositor could have purchased

additional shares, and there was no third-party purchaser that whose control of the company was a fait

accompli. Moreover, there was no suggestion the directors negotiated an additional benefit not provided

to the depositors, comparable to the Apex equity incentive plan here, or that a special dividend was issued

where the transfer of funds to insiders dwarfed those of the depositors.

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2d at 931 (“the plaintiffs are entitled to bring a claim for breach of contract based on their

assertion that they did not receive fair compensation...”) (citations omitted). And under Illinois

law, breach of contract includes claims for breach of the implied covenant of good faith and fair

dealing. Wilson v. Career Educ. Corp., 729 F.3d 665, 674 (7th Cir. 2013) (reversing district

court dismissal of breach of contract claim for good faith and fair dealing where plaintiff alleged

the defendant “exercised its [contractual] discretion contrary to the reasonable expectations of

the parties.”).14

Here, just as in Ormond, the Plan of Conversion created a contractual relationship with

the policyholders. And while the Plan made clear that Plaintiff would be only permitted to

purchase up to his “individual maximum purchase limit,” it was never disclosed nor was it

reasonable to assume that the reason for constraining his rights was to ensure that the company

was controlled by the standby purchaser. Just as in Wilson, Defendants conduct was contrary to

the reasonable expectations of the parties and, as such, Plaintiff has adequately pled a breach of

contract claim.

E. Plaintiff Properly Pled Unjust Enrichment

“Unjust enrichment is a common-law theory of recovery or restitution that arises when

the defendant is retaining a benefit to the plaintiff's detriment, and this retention is unjust. What

makes the retention of the benefit unjust is often due to some improper conduct by the

defendant.” Cleary v. Philip Morris Inc., 656 F.3d 511, 517 (7th Cir. 2011). Plaintiff has

sufficiently alleged that Apex was unjustly enriched as a result of the unnecessary constraints

placed on Plaintiff and the other members’ purchase rights that ensured one investor would

14 New Jersey law is the same. Wade v. Kessler Institute, 778 A.2d 580, 584 (N.J. Super. A.D. 2001)

(“The obligation to perform in good faith exists in every contract...”).

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receive the lion share of the stock and company control. ¶ 131. And, as a direct result of those

constraints, the stand-by purchaser received more than $71 million after a one-time dividend was

paid in November 2019. ¶ 81. Apex’s retention of those benefits is unjust. Defendants’ motion

should be denied.

F. Plaintiff Has Properly Alleged that Defendants Owed Plaintiff Certain

Fiduciary Duties to Plaintiff and the Class

The fact that Individual Director Defendants Rahe, Dong, Perry, and Ashe joined

Vericity’s board after the conversion is immaterial. Plaintiff alleges that the Individual Director

Defendants owed certain fiduciary duties such as duties of due care, loyalty, and good faith and

fair dealing with respect to their membership interest, the demutualization transaction, and the

conversion of Members Mutual to a stock company. ¶¶ 105-106, 108. Plaintiff also alleges that:

(i) Defendant Rahe also serves as the Managing Director of the Hedge Fund, which is an affiliate

of Apex (¶¶ 4, 20.); (ii) Defendant Dong is Vice President at the Hedge Fund (¶ 21); and (iii)

Defendant Perry is the CEO of AmeriLife Group Holdings, a portfolio company advised by the

Hedge Fund (¶ 22). Vericity’s special cash distribution was announced and paid in late 2019

(during which all Individual Director Defendants were board members) and Apex and the Hedge

Fund ¶(of which Rahe, Dong, and Perry are affiliated) received, along with the officers and

directors, many millions of dollars. See ¶ 61. These allegations make clear the connections that

these Defendants had with Vericity even before they joined the board and benefited from the

special cash distribution in late 2019, and thus support Plaintiff’s contention that they have a

fiduciary duty to Plaintiff and the proposed Class.

IV. CONCLUSION

Accordingly, Defendants’ motion to dismiss should be denied.

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Date: July 2, 2020 Respectfully submitted,

By: s/ Mark R. Miller

Edward A. Wallace

Mark R. Miller

WEXLER WALLACE, LLP

55 W Monroe St

Suite 3300

Chicago, IL 60603

(312) 346-2222

eaw@wexlerwallace.com

mrm@wexlerwallace.com

SALTZ MONGELUZZI

& BENDESKY, P.C.

Simon B. Paris

Patrick Howard

Charles J. Kocher

1650 Market Street, 52nd Floor

Philadelphia, PA 19013

215.496.8282

215.496.0999 (fax)

Sparis@smbb.com

Phoward@smbb.com

Ckocher@smbb.com

ROGERS CASTOR

Lance Rogers

Daniel J. Mirarchi

26 E. Athens Ave.

Ardmore, PA 19003

610-649-1880

877-649-1880 (fax)

Lance@RogercCastor.com

Dan@RogersCastor.com

GUSTAFSON GLUEK PLLC

Daniel E. Gustafson

Raina Borrelli

Canadian Pacific Plaza

120 South Sixth Street, Suite 2600

Minneapolis, MN 55402

(612) 333-8844

DGustafson@gustafsongluek.com

RBorrelli@gustafsongluek.com

BONI, ZACK & SNYDER LLC

Case: 1:20-cv-00456 Document #: 44 Filed: 07/02/20 Page 30 of 31 PageID #:292
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Michael J. Boni

Joshua D. Snyder

15 St. Asaphs Road

Bala Cynwyd, PA 19004

(610) 822-0200

(610) 822-0206 (fax)

mboni@bonizack.com

jsnyder@bonizack.com

Case: 1:20-cv-00456 Document #: 44 Filed: 07/02/20 Page 31 of 31 PageID #:293