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August 28, 2019

Trial begins in civil case against Knights of Columbus

Knights of Columbus headquarters in New Haven.

Jury selection has begun in a multi-million-dollar civil case against the Knights of Columbus over a failed vendor relationship.

While the New Haven-based Knights are most known for their charitable efforts, the Catholic organization also sells life insurance products. 

In 2017, a Colorado company, UKnight, sued the Knights in U.S. District Court in Colorado, claiming it engaged in “fraud, deception, theft, and broken promises.” The plaintiff is seeking compensatory damages, and claims the Knights “destroyed UKnight’s business” and cost the company “millions of dollars in losses.”

The trial, before Colorado U.S. District Judge R. Brooke Jackson, started with jury selection on Monday, and the parties anticipated the evidence phase of the trial to begin as soon as jurors were picked.

The plaintiff’s interaction with the Knights began a decade ago, when UKnight began designing and implementing websites for some local Knights councils in Texas. UKnight’s leadership reached out to the Knights in 2011 in hopes of getting the entire organization to use its interactive system in one online platform, according to court documents.

UKnight officials met with Knight leadership in 2011 in New Haven, and UKnight left the meeting believing a formal agreement had been reached, according to the lawsuit. As vendor for the entire Knights fraternity, which includes some 15,000 councils, UKnight anticipated earning annual subscription fees of approximately $3.5 million a year, court documents show.

UKnight claims it turned away other business to focus on the project and spent “thousands of dollars” to boost its capabilities.

The lawsuit also alleges that since the Knights of Columbus sells insurance to members (or individuals who become members within 90 days), it must demonstrate its membership is growing. If that isn’t the case, it would “severely threaten its insurance rating,” according to the lawsuit. It claims the Knights’ membership is actually “shrinking and aging.” It further alleges some Knights prevented local councils from dropping members from their rolls even if they quit, resulting in “phantom” members. 

According to the litigation, the UKnight system would have identified and eliminated such “phantom” members. 

The “defendants knew that they had to stall the UKnight system deployment until they could ultimately kill it and recreate its functionality under their own control in order to cover up their fraud while still deriving the benefits of the system,” the lawsuit alleges.

The litigation claims the Knights strung UKnight along for years, while giving reassurances that an agreement was still in place. The lawsuit further alleges the Knights stole UKnights’ trade secrets by soliciting alternative companies to “reproduce UKnight’s proprietary system” in-house.

The Knights of Columbus and its legal team, meanwhile, denied it ever had any contract, written or verbal, with UKnight and called the other allegations, including claims of membership fraud, “false.” Knights officials asserted that if someone wants to be removed as a member, or if they die, they are taken off the rolls following verification.

The Knights of Columbus wrote in court documents that it told UKnight it would be considering other potential vendors. The Knights reported issuing a request for proposals (RFP) and inviting UKnight to respond to that request.

“However, UKnight’s principals refused to submit a response to the RFP and later filed this lawsuit,” the Knights wrote in court filings.

The organization also denied any misuse of UKnight’s information, noting in one motion, ”There is no evidence of any misappropriation.” 

A.M. Best credit rating service ranked the Knights of Columbus at A+ (Superior), as of January 2019, with its outlook “stable.” The organization reports having approximately $25 billion in assets, and it has reported growth in new insurance issued, from $8.78 billion in 2017 to $8.88 billion in 2018, for example.

Kevin Shinkle, senior vice president and chief communications officer for the Knights of Columbus, said on Monday the Knights will not be commenting at this time, as the litigation is ongoing. 

The trial is expected to last several weeks. 

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