Case: 1:15-cv-02840 Document #: 1 Filed: 03/31/15 Page 1 of 14 PageID #:1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

DHR INTERNATIONAL, INC., GEOFFREY

HOFFMANN, AND DOUGLAS BLACK,
Plaintiffs,
v.
TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA,
Defendant.

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Case No.

JURY TRIAL DEMANDED

COMPLAINT
Plaintiffs, DHR International, Inc. (DHR), Geoffrey Hoffmann (Hoffmann), and
Douglas Black (Black), by and through their undersigned counsel and for their Complaint
against Defendant, Travelers Casualty and Surety Company of America (Travelers), allege as
follows:
I.
1.

THE PARTIES

Plaintiff DHR is a Delaware corporation with its principal place of business in

Chicago, Illinois.
2.

Plaintiff Hoffmann is DHRs Chief Executive Officer and resides in this Judicial

District.
3.
District.

Plaintiff Black is DHRs Chief Financial Officer and resides in this Judicial

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4.

Defendant Travelers is incorporated in Connecticut with its principal place of

business in Hartford, Connecticut. Travelers is licensed by the Illinois Department of Insurance

to do business in Illinois.
II.
5.

JURISDICTION AND VENUE

This Court has subject matter jurisdiction under 28 U.S.C. 1332(a)(1), as

Plaintiffs and Defendant are citizens of different states and the matter in controversy exceeds the
sum of $75,000, exclusive of interest and costs.
6.

Venue is proper under 28 U.S.C. 1391(b)(2) because a substantial part of the

events or omissions giving rise to the claim occurred in this District.

III.
A.
7.

FACTS

The Underlying Litigation

DHR is an executive search firm that hired Adam Charlson (Charlson) as an

Executive Vice President and the Managing Director of its West Coast operations. DHR entered
into a written, at will employment agreement with Charlson on May 14, 2012.
8.

No later than November 2013, Charlson began to take actions against DHRs

interests. More particularly, Charlson worked with a third-party consultant in an effort to move
DHRs West Coast operations to one of DHRs competitors for Charlsons own benefit. As part
of his scheme, Charlson disclosed DHRs confidential financial information to the third-party
consultant. Charlson also facilitated the departure of a key employee from DHR by using his
professional connections to secure a job for the employee with another firm.
9.

DHR terminated Charlson on April 6, 2014, after discovering his disloyalty and

wrongdoing.

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10.

On April 24, 2014, DHR filed a civil action against Charlson, styled DHR

International, Inc. v. Adam D. Charlson, in the U.S. District Court for the Northern District of
California.
11.

In DHR v. Charlson, DHR alleges that Charlson engaged in multiple acts of

disloyalty toward DHR, including attempting to move DHRs West Coast operations to a
competitor, divulging DHRs confidential information to third parties, and wrongfully assisting
the departure of a key employee from DHR.
12.

DHRs complaint asserts six causes of action against Charlson: (1) breach of the

duty of loyalty; (2) breach of fiduciary duty; (3) fraudulent concealment; (4) unfair and unlawful
business practices under California Business & Professions Code section 17200; (5) declaratory
judgment; and (6) breach of contract.
13.

On May 28, 2014, Charlson filed a civil action, styled Adam Charlson v. DHR

International, Inc., against DHR in California state court. A copy of Charlsons complaint is
attached hereto as Exhibit A. On July 2, 2014, the defendants removed Charlsons state court
action to the U.S. District Court for the Northern District of California. On July 9, 2014, that
Court consolidated the removed case with DHR v. Charlson under Case No. 4:14-CV-1899-PJH.
The case is still pending.
14.

In his complaint, Charlson alleges, among other things, that DHR failed to

properly remunerate him, that DHR discriminated against him, that DHR discredited him to his
potential employers, and that DHR, Hoffmann, and Black caused him emotional distress.
15.

Charlsons complaint asserts seventeen causes of action: (1) defamation per se;

(2) tortious interference with prospective economic advantage; (3) negligent interference with
prospective economic relations; (4) breach of the implied covenant of good faith and fair dealing;

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(5) marital status discrimination; (6) failure to prevent discrimination; (7) intentional infliction of
emotional distress; (8) wrongful termination; (9) breach of written contract; (10) quantum
meruit; (11) retaliation in violation of Labor Code Sections 98.6 and 1102.5(b); (12) fraud; (13)
failure to pay all wages earned; (14) failure to pay overtime; (15) failure to provide accurate pay
stubs; (16) failure to pay all wages at or near the time of separation; and (17) unfair business
practices. Charlson claims damages in excess of $5 million.
16.

Charlsons complaint originally asserted causes of action against DHR,

Hoffmann, Black, and two other DHR employees, Carol Hartman and Christine Abrams. After
removal, the Court dismissed the claims against Hartman and Abrams.

Currently, all of

Charlsons causes of action target DHR alone, except for his cause of action for intentional
infliction of emotional distress, which targets DHR, Hoffmann, and Black.
B.
17.

Travelers Insurance Policy & Reservation of Rights Letter

Travelers issued Policy No. 106084350 to DHR for the Policy Period April 7,

2014 to May 1, 2015 (the Policy). A copy of the Policy is attached hereto as Exhibit B.
18.

The Policy affords Directors and Officers (D&O) Liability Coverage,

Employment Practices Liability (EPL) Coverage, and Fiduciary Liability (FL) Coverage.
DHR, Black, and Hoffmann (collectively, the Insureds) are Insureds under the Policy.
19.

The Policy has a $5,000,000 aggregate Limit of Liability, inclusive of Defense

Expenses. Each EPL Claim is subject to a $100,000 retention. Each D&O Claim against an
indemnified individual or DHR is subject to a $50,000 retention. When a Claim implicates two
of the Policys Liability Coverages, the higher of the two retentions applies.

Because the

Charlson Claim falls within the EPL and the D&O Coverages, the $100,000 retention applies.
DHR has satisfied the $100,000 retention through its payment of Defense Expenses.

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20.

The Policy imposes on Travelers the duty to defend any Claim covered by one or

more of the Policys Liability Coverages, even if the allegations in the Claim are groundless,
false, or fraudulent.
21.

In a July 28, 2014 letter, Travelers agreed to defend the Insureds against

Charlsons claims, subject to a reservation of rights (the Reservation of Rights Letter). The
Reservation of Rights Letter, which Travelers never amended, is attached hereto as Exhibit C.
22.

In its Reservation of Rights Letter, Travelers acknowledged that Charlsons

allegations implicate both the EPL Liability Coverage and the D&O Liability Coverage, and that
Travelers, thus, has a duty under the Policy to defend the Insureds.
23.

After admitting that the Policy potentially covers at least some of Charlsons

claims, Travelers identified in its Reservation of Rights Letter several possible coverage
defenses.
24.

In particular, Travelers advised DHR that under the [Policys] Wage and Hour

Endorsement, Travelers will not indemnify DHR for any overtime wages owed to Mr. Charlson.
Travelers also reserved its right to disclaim liability for any damages that do not qualify as Loss
within the meaning of the Policy. In addition, Travelers noted that the Policys EPL Coverage
Section excludes from the definition of Loss any salaries, wages, benefits or overhead of any
Employees, and that its D&O Coverage Section excludes from the definition of Loss any
salaries, wages, benefits, or overhead of any employee of the Insured. Travelers also advised
that Section III. B. 2. under the Policys EPL Coverage Section would serve to preclude any
damages or liability arising out of the breach of [Charlsons employment agreement with DHR],
and that the Section III. A. 13. under the Policys D&O Coverage Section would serve to

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preclude [D&O Liability] coverage for DHR because Charlsons allegations arise out of his
former employment with DHR.
25.

After noting these and other possible coverage defenses, Travelers agreed to

provide a defense to its Insureds . . . under a full reservation of rights.

26.

Travelers reservation of rights created a conflict of interest that entitled the

Insureds to independent defense counseli.e., counsel representing solely the Insureds

interestsrather than defense counsel of Travelers choosing. In its Reservation of Rights
Letter, Travelers did not inform the Insureds of their right to independent counsel.
C.
27.

Travelers Appoints Defense Counsel

After Charlson sued the Insureds, they requested that Travelers appoint as defense

counsel the law firm of Ruberry, Stalmack & Garvey, LLC (RSG), which filed and is pursuing
DHRs affirmative claims against Charlson. Appointing RSG as defense counsel was logical
because DHRs claims against Charlson are inextricably intertwined with Charlsons claims
against the Insureds.

Travelers own panel counsel acknowledged that the lawsuits share

common issues, yet on July 9, 2014, Travelers denied the Insureds request and later explained
it did so because the policy gives Travelers the right to selection of counsel.
28.

On July 22, 2014, after it had rejected the Insureds request for independent

defense counsel, Travelers appointed its own panel counsel, the law firm of Gordon & Rees, to
defend the Insureds. Notwithstanding the conflict between Travelers and the Insureds created by
Travelers Reservation of Rights Letter, Gordon & Rees defended the Insureds until at least
February 18, 2015.
29.

During the period it represented the Insureds, Gordon & Rees placed Travelers

interests ahead of the Insureds interests. That is, Gordon & Rees positioned the defense to

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emphasize what Travelers contended were Charlsons uncovered claimshis claims seeking
remunerationrather than the several claims the Policy plainly coversdefamation,
discrimination, wrongful termination, retaliation, and so forth. For instance, without consulting
the Insureds, Travelers made a unilateral decision to defer any discovery until after the
mediation. Failing to conduct any discovery enabled Travelers to argue before, during, and after
the mediation that the Insureds can point to no evidence substantiating Charlsons indisputably
covered claims.
30.

Gordon & Rees also left the Insureds in the dark regarding its opinions and

recommendations, even though it was supposed to be representing the Insureds interests. For
example, Gordon & Rees failed to provide the Insureds with an initial case assessment report that
it prepared for and sent to Travelers on September 23, 2014. In that report, Gordon & Rees
analyzed Charlsons claims and estimated the chances for a verdict in favor of the Insureds on
each cause of action. Gordon & Rees provided this report to the Insureds only after RSG
demanded it in February 2015.
31.

Similarly, Gordon & Rees refused to discuss with the Insureds certain issues

relevant to the mediation, claiming it could not do so because it had two clients: the Insureds
and Travelers.
32.

When it did communicate with the Insureds, Gordon & Rees provided legal

advice antithetical to the Insureds best interests. For instance, during a phone call, Gordon &
Rees informed Black that Charlsons claims against DHR amount to a wage issue and that
DHR has an obligation to pay the outstanding wages itself. Gordon & Rees recommended to
Black that DHR settle Charlsons claims out of its own pocket and then attempt to win that

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money back through the DHR v. Charlson suita strategy that would inure only to Travelers
benefit.
33.

On February 13, 2015, as they were preparing for mediation, the Insureds again

requested that Travelers appoint RSG as their independent defense counsel. On February 17,
2015, Travelers responded, absent a clear conflict, Travelers is not going to deviate from our
panel counsel of Gordon & Rees. Travelers further advised that if the Insureds want to use
RSG in the future, DHR should consider switching to a reimbursement policy at renewal.
34.

On February 18, 2015, Travelers finally acknowledged the Insureds right to

independent defense counsel by consenting to RSGs representation of the Insureds in place of

Gordon & Rees.
35.

On the Insureds behalf, RSG demanded Travelers claim file and Gordon &

Rees litigation file. Travelers refused to provide these materials. Travelers did, however, agree
to provide the Insureds with all correspondence between Travelers and Gordon & Rees.
Travelers violated this agreement.
D.
36.

The Mediation

Mediation of the underlying litigation took place on March 12, 2015. Although

RSG had by that point replaced Gordon & Rees as the Insureds defense counsel, Gordon &
Rees participated in the mediation at Travelers direction and as counsel for Travelers.
37.

On March 13, 2015, the Insureds objected to the presence of Gordon & Rees at

the mediation. In response, Travelers insisted that it was entitled to have an attorney of its
choosing participate in all phases of litigation subjected to control of the case by the Peppers
attorney. Although it could have selected any law firm in the country to attend the mediation,

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Travelers chose Gordon & Rees, the Insureds former defense counsel, to represent Travelers
interests at the mediation.
38.

On March 16, 2015, Thomas Rizzuto, an in-house lawyer with Travelers who did

not attend the mediation, sent RSG an email rife with misrepresentations and accusing DHR of
acting in bad faith. Specifically, Mr. Rizzuto asserted that DHR chose not to have any
participation in the mediation. This is false. Along with RSG, a DHR representative with
settlement authority attended the mediation in California.
39.

Mr. Rizzuto also asserted in his March 16, 2015 email that DHR had fail[ed] to

cooperate throughout the whole mediation by refusing to contribute anything towards a

resolution. This, too, is false.
40.

Travelers antagonistic and bad faith conduct towards the Insureds is continuing.

On March 26, 2015, for example, Travelers demanded that the Insureds pay Gordon & Rees
outstanding legal bills. The Insureds, however, have no obligation to pay Gordon & Rees due to
the conflict of interest between Travelers and the Insureds that arose in July 2014. Indeed,
Travelers should not have appointed Gordon & Rees as defense counsel, and the Insureds are
entitled to recoup all fees and expenses they paid to Gordon & Rees since July 2014.
41.

Also, despite its conflict of interest, Gordon & Rees informed the Insureds on

March 26, 2015, that it would not release its case file to RSG, essentially holding the file
hostage, until Gordon & Rees receives full payment of its fees from the Insureds.
42.

On March 28, 2015, DHR noticed a billing entry from Gordon & Rees for a pre-

mediation report with focus on Charlson wage loss claims. Despite having billed the premediation report to the Insureds, Gordon & Rees did not send it to them. Later on March 28,
2015, the Insureds demanded that Travelers provide them with a copy of the pre-mediation

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report. True to its description, the February 25, 2015 pre-mediation report focuses exclusively
on Charlsons wage loss claims and ignores Charlsons other claims. Travelers used the premediation reportin tandem with its failure to conduct any discoveryas ammunition against
the Insureds in settlement negotiations.
43.

In addition, on or about March 26, 2015, Travelers refused DHRs request to

appoint RSG as its independent defense counsel in another case similar to Charlsons, and where
Travelers interests once again conflict with DHRs.
COUNT I DECLARATORY RELIEF RIGHT TO INDEPENDENT COUNSEL
44.

The Insureds reallege and incorporate as if fully stated herein the allegations in

Paragraphs 1 through 43 of this Complaint.

45.

This Court may declare the rights and other legal relations of the parties under 28

U.S.C. 2201(a) because an actual controversy exists between the parties concerning their
respective rights and obligations under an insurance policy that Travelers issued to DHR in
Illinois, and concerning the legality of Travelers actions in response to a claim under that
insurance policy.
46.

Under the Policy, Travelers has at all times had a duty to defend the Insureds

against Charlsons claims. Travelers has acknowledged its duty to defend, and defended the
Insureds under a reservation of rights.
47.

Travelers reservation of rights created a conflict of interest between Travelers

and the Insureds. Because of the conflict of interest, the Insureds were entitled to independent
defense counsel from July 28, 2015, the date of Travelers Reservation of Rights Letter, forward.
Travelers breached its duty to provide the Insureds independent defense counsel. Also, as soon

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as the conflict arose, Travelers had a duty to inform the Insureds of the conflict of interest and
their right to independent counsel. Travelers breached this duty as well.
48.

Travelers Reservation of Rights Letter created a conflict of interest between

Travelers and the Insureds, yet Travelers defended the Insureds without first properly reserving
its rights by making specific reference to the conflict. Travelers, therefore, is estopped from
raising any coverage defenses and is liable to the Insureds for all of their resultant damages.
49.

The Insureds are, thus, entitled to a declaration that (i) Travelers Reservation of

Rights Letter created a conflict of interest between Travelers and the Insureds; (ii) the Insureds
have been entitled to independent defense counsel of their choosing at Travelers expense from
July 28, 2014, the date of Travelers Reservation of Rights Letter, forward; and (iii) as a result of
its failure to appoint independent defense counsel and its failure to properly reserve its rights,
Travelers is estopped from asserting any coverage defenses to Charlsons claims.
COUNT II BREACH OF CONTRACT (DUTY TO DEFEND)
50.

The Insureds reallege and incorporate as if fully stated herein the allegations in

Paragraphs 1 through 49 of this Complaint.

51.

Under the Policy, Travelers has at all times had a duty to defend the Insureds

against Charlsons claims. Travelers has acknowledged its duty to defend, and defended the
Insureds under a reservation of rights.
52.

Travelers reservation of rights created a conflict of interest between Travelers

and the Insureds. Because of the conflict of interest, the Insureds were entitled to independent
defense counsel from July 28, 2015, the date of Travelers Reservation of Rights Letter, forward.
Travelers breached its duty to provide the Insureds independent defense counsel until February

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18, 2015. Also, as soon as the conflict arose, Travelers had a duty to inform the Insureds of the
conflict of interest and their right to independent counsel. Travelers breached this duty as well.
53.

Travelers breached its duty to defend by failing to appoint independent defense

counsel and by failing to advise the Insureds of their right to independent defense counsel. As a
result, the Insureds suffered damages. These damages include the amounts the Insureds (i) paid
to Gordon & Rees, (ii) paid to RSG (in excess of the $100,000 retention) in defense of
Charlsons claims and in prosecuting the intertwined affirmative claims against Charlson, and
(iii) the attorneys fees and costs incurred in pursuing its right to independent counsel.
COUNT III VIOLATION OF 215 ILCS 5/155
54.

The Insureds reallege and incorporate as if fully stated herein the allegations in

Paragraphs 1 through 53 of this Complaint.

55.

Since the Insureds tendered the Charlson claim to Travelers for coverage and a

defense, Travelers conduct toward the Insureds has been, and remains, vexatious and
unreasonable, in that Travelers: (1) deprived the Insureds of their right to independent counsel;
(2) knowingly misrepresented facts to the Insureds; (3) withheld from the Insureds legal analyses
it received from Gordon & Rees; (4) failed to promptly and adequately investigate Charlsons
claims; (5) delayed in settling Charlsons claims; (6) unreasonably failed to settle within Policy
limits; (7) retained Gordon & Rees as its own counsel after Gordon & Rees had represented the
Insureds; (8) falsely accused the Insureds of bad faith; (9) refused RSGs retention in a similar
matter; (10) held the claims file hostage; and (11) attempted to steer Charlsons claims out of
coverage by emphasizing the claims Travelers contends are uncovered while ignoring the
indisputably covered claims.
56.

The Insureds were forced to file this suit in order to protect their rights.

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PRAYER FOR RELIEF

WHEREFORE, the Insureds respectfully request this Court to:
A.

Declare that Travelers Reservation of Rights Letter created a conflict of interest

between Travelers and the Insureds;

B.

Declare that the Insureds have been entitled to independent defense counsel of

their choosing at Travelers expense from July 28, 2015, the date of Travelers Reservation of
Rights Letter, forward;
C.

Declare that, as a result of its failure to appoint independent defense counsel and

its failure to properly reserve its rights, Travelers is estopped from asserting any coverage
defenses to Charlsons claims;
D.

Award the Insureds all the damages they suffered due to Travelers breach of its

duty to defend, including all of the reasonable attorneys fees and costs that the Insureds: (i) paid
to Gordon & Rees, (ii) paid to RSG (in excess of the $100,000 retention) in defense of
Charlsons claims and in prosecuting the intertwined affirmative claims against Charlson, and
(iii) incurred in pursuing its right to independent counsel.
E.

Award the Insureds the maximum amount allowable under 215 ILCS 5/155; and

F.

Grant any other relief that this Court deems just and equitable under the

circumstances.

Dated: March 31, 2015

Respectfully submitted,
/s/ Edward F. Ruberry
Edward F. Ruberry (ARDC # 2411547)
Ellen D. Jenkins (ARDC # 6231011)
Zachary P. Mulcrone (ARDC # 6300387)
RUBERRY, STALMACK & GARVEY, LLC
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500 W. Madison Street, Suite 2300

Chicago, IL 60661
(312) 466-8050
Ed.Ruberry@rsg-law.com
Counsel for Plaintiffs

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