Naptuno-Treuhand-Und Verwaltungellschaft MBH v. Arbor
Annotate this Case
SIXTH DIVISION
March 13, 1998
No. 1-95-1864
NEPTUNO TREUHAND-UND ) Appeal from the
VERWALTUNGSGESELLSCHAFT MBH, and FESAG ) Circuit Court of
FINANCIAL ENGINEERING SERVICES, GMBH, ) Cook County
)
Plaintiffs-Appellants, )
)
v. )
)
PATRICK H. ARBOR and CHICAGO BOARD OF )
TRADE, ) Honorable
) Gary Brownfield,
Defendants-Appellees. ) Judge Presiding.
JUSTICE QUINN delivered the opinion of the court:
This case is brought on appeal from a May 19, 1995, order of
the circuit court of Cook County, dismissing plaintiffs' second
amended complaint with prejudice, pursuant to section 2-615 of the
Illinois Code of Civil Procedure. 735 ILCS 5/2-615 (West 1994).
On appeal, plaintiffs-appellants contend that the trial court
erred, as a matter of law, in determining that: (1) defendant-
appellee Patrick J. Arbor had no duty to disclose to plaintiffs all
material facts known to him relating to Thomas J. Farrell's fitness
to be a commodities futures trader; (2) plaintiffs unreasonably
relied on Arbor's letter of introduction; and (3) plaintiffs'
second amended complaint failed to state a cause of action for
negligent misrepresentation pursuant to section 2-615 of the
Illinois Code of Civil Procedure.
The following are the pertinent facts contained in the record.
Plaintiffs, FESAG Financial Engineering Services (FESAG) and
Neptuno Treuhand-Und Verwaltungsgesellschaft (Neptuno), are both
companies based in Germany. In the summer of 1993, Thomas J.
Farrell (Farrell) contacted Hans Peter Dietrich (Dietrich),
principal owner of FESAG, regarding possible employment by FESAG as
a commodities futures trader. In August 1993, FESAG hired Farrell
as a trader, on the express condition that he provide a letter of
reference from Patrick H. Arbor (Arbor) attesting to his
experience, competence and integrity as a commodities futures
trader. In response to FESAG's request, Farrell solicited a letter
of recommendation from Arbor, chairman of defendant-appellee
Chicago Board of Trade (CBOT). The letter, addressed to Dietrich,
and dated August 27, 1993, stated in its entirety:
"I have known Tom Farrell personally for over 13 years.
He was an active full member of the Chicago Board of
Trade. Tom has always proven to be an intelligent in-
dustrious and innovative young man."
This letter was delivered to FESAG upon Farrell's arrival in
Germany on September 2, 1993.
FESAG agreed to allow Farrell to trade German security futures
on behalf of FESAG. Farrell agreed that he would not have more
than 10 futures contracts open at any one time. Farrell began
trading on September 10, 1993. He was supervised by a FESAG
employee who monitored Farrell's trading activities. On September
15, 1993, Farrell was left unsupervised for approximately two
hours. During this brief time, Farrell put himself and FESAG into
a position with more than 5,900 futures contracts open. As a
result of Farrell's activities, FESAG incurred losses of
approximately $5 million. A subsequent inquiry by FESAG to the
National Futures Exchange revealed that on July 16, 1993, Farrell
had entered into a consent order with the Chicago Futures Trading
Commission (CFTC), under which Farrell was barred from trading his
own account or any other account in which he had an interest on any
futures exchange for two years. In addition, FESAG's inquiry
revealed that Farrell's floor broker registration had also been
permanently revoked by the CFTC.
On April 4, 1994, plaintiffs commenced an action against Arbor
and CBOT alleging that Arbor should have disclosed the disciplinary
information about Farrell in his letter of recommendation. The
trial court dismissed plaintiffs' first and second amended
complaints. The first count of the second amended complaint
alleged fraudulent misrepresentation, the second count alleged
fraudulent concealment, and the third count alleged negligent
misrepresentation. After three failed attempts to plead a cause
of action against Arbor and/or CBOT, plaintiffs moved the court to
reconsider its dismissal or alternatively to enter a final order
dismissing the second amended complaint with prejudice. The trial
court denied plaintiffs' motion for reconsideration and dismissed
plaintiffs' second amended complaint with prejudice. The trial
court dismissed the second amended complaint under section 2-615
based on its finding that the letter contained no misstatements of
fact and defendants owed plaintiffs no duty to reveal adverse
information in a letter of reference because defendants and
plaintiffs had no relationship with one another, and on the ground
that plaintiffs' reliance was not justifiable.
A section 2-615 motion for dismissal should not be granted
unless it clearly appears that no set of facts could be proved that
would entitle plaintiffs to recovery. Mt. Zion State Bank & Trust
v. Consolidated Communications, Inc., 169 Ill. 2d 110, 115 (1995).
"In ruling on such motion, only those facts apparent from the face
of the pleadings, matters of which the court can take judicial
notice, and judicial admissions in the record may be considered."
Mt. Zion, 169 Ill. 2d at 115. We review such orders de novo
(Estate of Strocchia v. City of Chicago, 284 Ill. App. 3d 891, 898
(1996)), and all well-pleaded facts and reasonable inferences are
taken as true. Mt. Zion, 169 Ill. 2d at 115.
The first issue on appeal is whether plaintiffs' complaint
contained factual allegations sufficient to establish a cause of
action for fraudulent misrepresentation.
Under Illinois law, the elements a plaintiff needs to plead
and prove in a fraudulent misrepresentation complaint are: (1) a
false statement of material fact; (2) knowledge or belief of the
falsity by the party making it; (3) an intention to induce the
other party to act; (4) action by the other party in reliance on
the truth of the statements; and (5) damage to the other party
resulting from such reliance. Board of Education v. A, C & S,
Inc., 131 Ill. 2d 428 (1989). Further, the reliance on the part of
the plaintiff must have been justifiable. Soules v. General Motors
Corp., 79 Ill. 2d 282, 286 (1980).
In the instant case, Arbor's letter of reference does not
contain any false statement of material fact. Arbor's letter
states that: (1) he had known Farrell personally for over 13 years;
(2) Farrell was an active full member of the Chicago Board of
Trade; (3) and Farrell had always proven to be an intelligent,
industrious and innovative young man. Plaintiffs' complaint
contained no allegations that Arbor did not know Farrell personally
or that Farrell was not a member of the Chicago Board of Trade.
Defendants assert that Arbor's comments regarding Farrell's
intelligence, innovativeness and industrious nature represent mere
opinion and therefore cannot form the basis of an action of fraud,
citing Soderland Brothers, Inc. v. Carrier Corp., 278 Ill. App. 3d
606, 620 (1995).
"A representation is one of opinion rather than fact if it
only expresses the speaker's belief, without certainty, as to the
existence of a fact." Marino v. United Bank of Illinois, N.A., 137
Ill. App. 3d 523, 527 (1985) citing Restatement (Second) of Torts
538(A) (1977); see also Union Pacific R.R. Co. v. Village of South
Barrington, 958 F. Supp. 1285 (N.D. Ill. 1997).
The Restatement (Second) of Torts, section 538(A), provides:
"A representation is one of opinion if it expresses only
(a) the belief of the maker, without certainty, as to the
existence of a fact; or
(b) his judgment as to quality, value, authenticity, or other
matters of judgment." Restatement (Second) of Torts 538(A)
(1977).
The comment to this section provides:
"One common form of opinion is a statement of the maker's
judgment as to quality, value, authenticity or similar
matters as to which opinions may be expected to differ.
Thus the statement that an automobile is a good car is
a relative matter, depending entirely upon the standard
set as to what is a good automobile and what is not, and
it is a matter upon which individual judgments may be
expected to differ. The maker of a statement of this
nature will normally be understood as expressing only his
own judgment and not as asserting anything concerning
horsepower, riding qualities or any of the dozen other
factors that would influence his judgment." Restatement
(Second) of Torts 538(A), Explanatory Note, at 83 (1977).
Intelligence, innovativeness and an industrious nature are personal
qualities and whether they exist in a given individual is a matter
upon which individual judgment may be expected to differ.
In Continental Bank v. Meyer, 10 F.3d 1293 (7th Cir. 1993),
the court reviewed a suit between a bank and borrowers who had
invested in a horse-breeding limited partnership. There, the court
held, "[t]he defendants also allege that the bank officers stated
that the horses were (necessarily 'would be') of the highest
quality, and that the partnership would be managed by competent
general partners. These statements are no more than opinion."
Continental Bank, 10 F.3d at 1299. See also Nanlawala v. Jack Carl
Associates, Inc., 669 F. Supp. 204, 207 (N.D. Ill. 1987)
(statements that defendant futures trader had "expertise" was
merely "puffing" and statement that defendant would "pick good
trades" was also not actionable because it was merely a prediction
of future investment success).
We hold that Arbor's comments regarding Farrell's
intelligence, innovativeness and industrious nature represent mere
opinion and, therefore, cannot form the basis of an action for
fraudulent misrepresentation.
After the trial court's dismissal of plaintiffs' original
complaint and first amended complaint, which set forth only one
cause of action for intentional misrepresentation, plaintiffs'
second amended complaint set forth claims for fraudulent
concealment and negligent misrepresentation in addition to the
claim for fraudulent misrepresentation. Plaintiffs point out that
in cases of fraudulent misrepresentation based on omission
(fraudulent concealment) it has been held that:
"[i]n order to prove the concealment amount-
ed to a fraudulent misrepresentation the plain-
tiff must prove: (1) the concealment of a mat-
erial fact; (2) the concealment was intended to
induce a false belief, under circumstances cre-
ating a duty to speak [citation]; (3) the inno-
cent party could not have discovered the truth
through a reasonable inquiry or inspection, or
was prevented from making a reasonable inquiry
or inspection, and relied upon the silence as a
representation that the fact did not exist;
(4) the concealed information was such that
the injured party would have acted different-
ly had he been aware of it; and (5) that re-
liance by the person from whom the fact was con-
cealed led to his injury." Stewart v. Thrasher,
242 Ill. App. 3d 10, 16 (1993).
In applying this holding to the instant case, there is no
question that the Arbor letter failed to disclose a material fact
which, if known to plaintiffs, would have caused them to act
differently. As to the requirement of "under circumstances
creating a duty to speak," in Illinois, in order to prove fraud by
the intentional concealment of a material fact, it is necessary to
show the existence of a special or fiduciary relationship, which
would raise a duty to speak. Magna Bank v. Jameson, 237 Ill. App.
3d 614, 618 (1992); Lidecker v. Kendall College, 194 Ill. App. 3d
309, 317 (1990). There is no duty to speak absent a fiduciary or
other legal relationship between the parties. Magna Bank, 237 Ill.
App. 3d at 618; Warner v. Lucas, 185 Ill. App. 3d 351, 355 (1989).
The burden of proving that a fiduciary relationship exists lies
with the party seeking relief. Magna Bank, 237 Ill. App. 3d at
618.
Plaintiffs cite several cases in support of their position
that defendants should be held liable for fraudulent concealment.
In five of these cases, Kinsey v. Scott, 124 Ill. App. 3d 329
(1984), Tan v. Boyke, 156 Ill. App. 3d 49 (1987), Stewart v.
Thrasher, 242 Ill. App. 3d 10 (1993), Heider v. LeeWards Creative
Crafts, Inc., 245 Ill. App. 3d 258 (1993), and Mitchell v. Skubiak,
248 Ill. App. 3d 1000 (1993), there was a buyer-seller relationship
between the parties. City of Chicago v. American National Bank &
Trust Co., 233 Ill. App. 3d 1031 (1992), involved a landlord-tenant
relationship.
Plaintiffs cite St. Joseph Hospital v. Corbetta Construction
Co., 21 Ill. App. 3d 925 (1974), as the leading Illinois case on
"half-truths" for its holding that "a statement which is
technically true as far as it goes may nevertheless be fraudulent,
where it is misleading because it does not state matters which
materially qualify the statement as made. In other words, a half-
truth is sometimes more misleading than an outright lie." St.
Joseph Hospital, 21 Ill. App. 3d at 952-53. However, the defendant
in St. Joseph Hospital was a manufacturing firm that had made
representations to a construction firm building part of a hospital
that its paneling was not "flame rated." In fact the paneling had
been tested and found to have a flame spread 17 times greater than
the maximum allowed under the Chicago building code. While there
was no privity in the traditional sense, this court held the
manufacturing firm liable for damages. The defendant manufacturing
firm did supply the defective paneling which was installed in the
hospital. No such relationship exists here.
Plaintiffs rely on Union National Bank & Trust Co. v.
Carlstrom, 134 Ill. App. 3d 985 (1985), for its holding "[a] party
may assume a duty to disclose information accurately by its
conduct. That clearly was the case here. The bank voluntarily
gave a detailed description of the Carlstrom's [sic] dealings with
the Bank. In so doing, it undertook a duty not to deliberately
conceal or misrepresent." Union National Bank, 134 Ill. App. 3d at
989. In that case, the plaintiff was a bank customer, and more
importantly, the allegedly misleading information concerned the
Carlstroms' account and was very detailed. This is not the case
here.
In the instant case, plaintiffs admit that they had no prior
relationship of any kind with Arbor and had no fiduciary
relationship with the Chicago Board of Trade. There were no prior
or anticipated business dealings between either the Chicago Board
of Trade or Arbor and FESAG. In fact, the sole contact between the
parties was Arbor's letter of reference. Further, it was Farrell
who asked Arbor for the letter of reference. Based on the failure
of plaintiffs to allege that a special or fiduciary relationship
existed between plaintiffs and defendants, the trial court's
dismissal of plaintiffs' fraudulent concealment claim must be
affirmed.
Negligent misrepresentation has essentially the same elements
as fraudulent misrepresentation, except that the defendant's mental
state is different. The defendant need not know that the statement
is false. His own carelessness or negligence in ascertaining its
truth will suffice for a cause of action. For negligent
misrepresentation, a plaintiff must also allege that the defendant
owes a duty to the plaintiff to communicate accurate information.
Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 452 (1989).
Defendants assert that Illinois law will not support a cause
of action sounding in negligent misrepresentation for purely
economic loss unless the misrepresentation is made by one who is in
the business of supplying information for the guidance of others
in their business transactions, citing University of Chicago
Hospitals v. United Parcel Service, 231 Ill. App. 3d 602 (1992),
which relied on Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69 (1982).
In Moorman, our supreme court held that a manufacturer could
not be held liable under a negligent misrepresentation theory for
economic losses caused. However, economic loss is recoverable
"where one who is in the business of supplying information for the
guidance of others in their business transactions makes negligent
representations." Moorman Manufacturing Co., 91 Ill. 2d at 88-89.
Rozny v. Marnul, 43 Ill. 2d 54 (1969), held that purchasers of
residential housing could recover against a surveyor for the
negligently inaccurate representations of the survey that caused
economic loss to the purchasers even though no privity of contract
existed between the purchasers and surveyor. Plaintiffs correctly
point out that in considering the holdings in these cases, in Board
of Education v. A, C & S, Inc., our supreme court said, "[w]e do
not believe that Moorman and Rozny conclusively resolve the
question of when and against whom a plaintiff may recover economic
losses for a negligent misrepresentation." A, C & S, Inc., 131 Ill. 2d at 454. Here, however, plaintiffs have failed to show that
defendants owed any duty to plaintiffs to communicate accurate
information.
Further, no recovery for fraudulent misrepresentation,
fraudulent concealment or negligent misrepresentation is possible
unless plaintiffs can prove justifiable reliance, i.e., that any
reliance was reasonable. In determining whether there was
justifiable reliance, it is necessary to consider all of the facts
within a plaintiff's actual knowledge as well as those which he
could have discovered by the exercise of ordinary prudence. Marino
v. United Bank of Illinois, N.A., 137 Ill. App. 3d 523, 527 (1985),
citing Soules v. General Motors Corp., 79 Ill. 2d 282, 286 (1980).
If ample opportunity existed to discover the truth, then reliance
is not justified. Central States Joint Board v. Continental
Assurance Co., 117 Ill. App. 3d 600, 607 (1983). Here, plaintiffs
admit they made no inquiry into Farrell's background other than
their request to him that he supply a letter of reference from
Arbor. Plaintiffs do not assert that they were prevented from
making a further inquiry.
"A plaintiff has a duty to investigate further when the
circumstances reasonably require, as a matter of prudence, that an
investigation be undertaken. [Citation.] *** In short, the crucial
question is whether the plaintiffs' conduct was unreasonable under
the circumstances and "'in light of the information open to him,
that the law may properly say that this loss is his own
responsibility.'" [Citation.]" West v. Western Casualty & Security
Co., 846 F.2d 387, 394 (7th Cir. 1988).
Plaintiffs were hiring Farrell for a position in which he
would have the ability to bind FESAG to any decision Farrell made
in the futures industry. This potentially involved access to vast
amounts of money in a volatile situation. In spite of this, FESAG
and Neptuno assert that their reliance on Arbor's three-sentence
letter as the sole support for their hiring decision was
reasonable.
Plaintiffs correctly point out that whether a plaintiff's
reliance was reasonable is usually a question of fact and should be
properly decided by the trier of fact. "Where it is apparent from
the undisputed facts, however, that only one conclusion can be
drawn, the question becomes one for the court." Witherell v.
Weimer, 85 Ill. 2d 146, 156 (1981), rev'd on other grounds, 118 Ill. 2d 321 (1987). Here, plaintiffs' own factual allegations
establish that plaintiffs' alleged reliance was unreasonable as a
matter of law. Illinois courts have held that rulings on motions
to dismiss generally do not dispose of actions, but allow
plaintiffs an opportunity to amend their complaints unless it
becomes apparent that there is no set of facts that could be
pleaded that would entitle a plaintiff to recover. University of
Chicago Hospitals v. MPS, 231 Ill. App. 3d 602, 605 (1992). Here,
there is no set of facts that could be pleaded that would entitle
plaintiffs to recover.
Finally, defendants point to two out-of-state employment
referral cases as support for their position. In Moore v. St.
Joseph Nursing Home, Inc., 184 Mich. App. 766, 459 N.W.2d 100, a
summary dismissal was affirmed because a former employer had no
duty to disclose a former employee's violent conduct to a
prospective employer, even though the employee had received 24
disciplinary warnings. In Janssen v. American Hawaii Cruises,
Inc., 69 Haw. 31, 731 P.3d 163, a former employee of a cruise line
who had been sexually assaulted by another former employee sued
their former employer and the union that had referred the attacker
for employment. The Hawaii Supreme Court held that the union's
contractual duty to refer prospective employees did not obligate it
to investigate or screen applicants, and thus the union owed no
such duty to the person attacked and no duty existed between the
former employer and the person attacked.
Our research reveals that two other jurisdictions have taken
a different view of these "negligent referral" cases. In Randi W.
v. Muroc Joint Unified School District, 14 Cal. 4th 1066, 929 P.2d 582, 60 Cal. Rptr. 2d 263 (1997), a student sued a school
administrator who allegedly sexually assaulted her and the
administrator's former employers who gave him a positive
recommendation.
The California Supreme Court held that: (1) the writer of a
recommendation letter owes to prospective employers and third
persons a duty not to misrepresent the facts in describing the
qualifications and character of the former employee, if making the
misrepresentations would present a substantial, foreseeable risk of
physical injury to the prospective employer or third persons; (2)
the former employers owed a duty to the plaintiff student not to
misrepresent the qualifications and character of the administrator
who allegedly committed the assault; (3) letters from the
administrator's former employers made affirmative misrepresenta-
tions by positively evaluating the administrator's character and
rapport with students without disclosing that disciplinary actions
had been taken against him for alleged sexual misconduct with
students; and (4) the student was not required to allege that she
herself relied on the employer's misrepresentations, but only that
her injury resulted from action taken by the recipient of the
misrepresentations in reliance on them.
In Golden Spread Council, Inc. No. 562 of the Boy Scouts of
America v. Akins, 926 S.W.2d 287 (Tex. 1996), a boy scout sued the
Boy Scouts of America and the local boy scout council after the
scout was allegedly sexually molested by a scoutmaster. The Texas
Supreme Court held that the local boy scout council owed a duty to
the potential troop sponsor that asked the council to introduce it
to a potential scoutmaster. This duty extended to children and
parents involved in the troop who relied on the council's
recommendation. The council's affirmative act of recommending the
scoutmaster created a duty to use reasonable care in light of
information the local council had received about the scoutmaster's
alleged prior conduct with other boys.
We decline to follow either line of cases here. Illinois has
not recognized a cause of action for "negligent referral" and this
is certainly not the case to decide this issue.
For the foregoing reasons, the trial court's dismissal of
plaintiffs' complaint is affirmed.
Affirmed.
THEIS and ZWICK, JJ., concur.
March 13, 1998
No. 1-95-1864
NEPTUNO TREUHAND-UND ) Appeal from the
VERWALTUNGSGESELLSCHAFT MBH, and FESAG ) Circuit Court of
FINANCIAL ENGINEERING SERVICES, GMBH, ) Cook County
)
Plaintiffs-Appellants, )
)
v. )
)
PATRICK H. ARBOR and CHICAGO BOARD OF )
TRADE, ) Honorable
) Gary Brownfield,
Defendants-Appellees. ) Judge Presiding.
JUSTICE QUINN delivered the opinion of the court:
This case is brought on appeal from a May 19, 1995, order of
the circuit court of Cook County, dismissing plaintiffs' second
amended complaint with prejudice, pursuant to section 2-615 of the
Illinois Code of Civil Procedure. 735 ILCS 5/2-615 (West 1994).
On appeal, plaintiffs-appellants contend that the trial court
erred, as a matter of law, in determining that: (1) defendant-
appellee Patrick J. Arbor had no duty to disclose to plaintiffs all
material facts known to him relating to Thomas J. Farrell's fitness
to be a commodities futures trader; (2) plaintiffs unreasonably
relied on Arbor's letter of introduction; and (3) plaintiffs'
second amended complaint failed to state a cause of action for
negligent misrepresentation pursuant to section 2-615 of the
Illinois Code of Civil Procedure.
The following are the pertinent facts contained in the record.
Plaintiffs, FESAG Financial Engineering Services (FESAG) and
Neptuno Treuhand-Und Verwaltungsgesellschaft (Neptuno), are both
companies based in Germany. In the summer of 1993, Thomas J.
Farrell (Farrell) contacted Hans Peter Dietrich (Dietrich),
principal owner of FESAG, regarding possible employment by FESAG as
a commodities futures trader. In August 1993, FESAG hired Farrell
as a trader, on the express condition that he provide a letter of
reference from Patrick H. Arbor (Arbor) attesting to his
experience, competence and integrity as a commodities futures
trader. In response to FESAG's request, Farrell solicited a letter
of recommendation from Arbor, chairman of defendant-appellee
Chicago Board of Trade (CBOT). The letter, addressed to Dietrich,
and dated August 27, 1993, stated in its entirety:
"I have known Tom Farrell personally for over 13 years.
He was an active full member of the Chicago Board of
Trade. Tom has always proven to be an intelligent in-
dustrious and innovative young man."
This letter was delivered to FESAG upon Farrell's arrival in
Germany on September 2, 1993.
FESAG agreed to allow Farrell to trade German security futures
on behalf of FESAG. Farrell agreed that he would not have more
than 10 futures contracts open at any one time. Farrell began
trading on September 10, 1993. He was supervised by a FESAG
employee who monitored Farrell's trading activities. On September
15, 1993, Farrell was left unsupervised for approximately two
hours. During this brief time, Farrell put himself and FESAG into
a position with more than 5,900 futures contracts open. As a
result of Farrell's activities, FESAG incurred losses of
approximately $5 million. A subsequent inquiry by FESAG to the
National Futures Exchange revealed that on July 16, 1993, Farrell
had entered into a consent order with the Chicago Futures Trading
Commission (CFTC), under which Farrell was barred from trading his
own account or any other account in which he had an interest on any
futures exchange for two years. In addition, FESAG's inquiry
revealed that Farrell's floor broker registration had also been
permanently revoked by the CFTC.
On April 4, 1994, plaintiffs commenced an action against Arbor
and CBOT alleging that Arbor should have disclosed the disciplinary
information about Farrell in his letter of recommendation. The
trial court dismissed plaintiffs' first and second amended
complaints. The first count of the second amended complaint
alleged fraudulent misrepresentation, the second count alleged
fraudulent concealment, and the third count alleged negligent
misrepresentation. After three failed attempts to plead a cause
of action against Arbor and/or CBOT, plaintiffs moved the court to
reconsider its dismissal or alternatively to enter a final order
dismissing the second amended complaint with prejudice. The trial
court denied plaintiffs' motion for reconsideration and dismissed
plaintiffs' second amended complaint with prejudice. The trial
court dismissed the second amended complaint under section 2-615
based on its finding that the letter contained no misstatements of
fact and defendants owed plaintiffs no duty to reveal adverse
information in a letter of reference because defendants and
plaintiffs had no relationship with one another, and on the ground
that plaintiffs' reliance was not justifiable.
A section 2-615 motion for dismissal should not be granted
unless it clearly appears that no set of facts could be proved that
would entitle plaintiffs to recovery. Mt. Zion State Bank & Trust
v. Consolidated Communications, Inc., 169 Ill. 2d 110, 115 (1995).
"In ruling on such motion, only those facts apparent from the face
of the pleadings, matters of which the court can take judicial
notice, and judicial admissions in the record may be considered."
Mt. Zion, 169 Ill. 2d at 115. We review such orders de novo
(Estate of Strocchia v. City of Chicago, 284 Ill. App. 3d 891, 898
(1996)), and all well-pleaded facts and reasonable inferences are
taken as true. Mt. Zion, 169 Ill. 2d at 115.
The first issue on appeal is whether plaintiffs' complaint
contained factual allegations sufficient to establish a cause of
action for fraudulent misrepresentation.
Under Illinois law, the elements a plaintiff needs to plead
and prove in a fraudulent misrepresentation complaint are: (1) a
false statement of material fact; (2) knowledge or belief of the
falsity by the party making it; (3) an intention to induce the
other party to act; (4) action by the other party in reliance on
the truth of the statements; and (5) damage to the other party
resulting from such reliance. Board of Education v. A, C & S,
Inc., 131 Ill. 2d 428 (1989). Further, the reliance on the part of
the plaintiff must have been justifiable. Soules v. General Motors
Corp., 79 Ill. 2d 282, 286 (1980).
In the instant case, Arbor's letter of reference does not
contain any false statement of material fact. Arbor's letter
states that: (1) he had known Farrell personally for over 13 years;
(2) Farrell was an active full member of the Chicago Board of
Trade; (3) and Farrell had always proven to be an intelligent,
industrious and innovative young man. Plaintiffs' complaint
contained no allegations that Arbor did not know Farrell personally
or that Farrell was not a member of the Chicago Board of Trade.
Defendants assert that Arbor's comments regarding Farrell's
intelligence, innovativeness and industrious nature represent mere
opinion and therefore cannot form the basis of an action of fraud,
citing Soderland Brothers, Inc. v. Carrier Corp., 278 Ill. App. 3d
606, 620 (1995).
"A representation is one of opinion rather than fact if it
only expresses the speaker's belief, without certainty, as to the
existence of a fact." Marino v. United Bank of Illinois, N.A., 137
Ill. App. 3d 523, 527 (1985) citing Restatement (Second) of Torts
538(A) (1977); see also Union Pacific R.R. Co. v. Village of South
Barrington, 958 F. Supp. 1285 (N.D. Ill. 1997).
The Restatement (Second) of Torts, section 538(A), provides:
"A representation is one of opinion if it expresses only
(a) the belief of the maker, without certainty, as to the
existence of a fact; or
(b) his judgment as to quality, value, authenticity, or other
matters of judgment." Restatement (Second) of Torts 538(A)
(1977).
The comment to this section provides:
"One common form of opinion is a statement of the maker's
judgment as to quality, value, authenticity or similar
matters as to which opinions may be expected to differ.
Thus the statement that an automobile is a good car is
a relative matter, depending entirely upon the standard
set as to what is a good automobile and what is not, and
it is a matter upon which individual judgments may be
expected to differ. The maker of a statement of this
nature will normally be understood as expressing only his
own judgment and not as asserting anything concerning
horsepower, riding qualities or any of the dozen other
factors that would influence his judgment." Restatement
(Second) of Torts 538(A), Explanatory Note, at 83 (1977).
Intelligence, innovativeness and an industrious nature are personal
qualities and whether they exist in a given individual is a matter
upon which individual judgment may be expected to differ.
In Continental Bank v. Meyer, 10 F.3d 1293 (7th Cir. 1993),
the court reviewed a suit between a bank and borrowers who had
invested in a horse-breeding limited partnership. There, the court
held, "[t]he defendants also allege that the bank officers stated
that the horses were (necessarily 'would be') of the highest
quality, and that the partnership would be managed by competent
general partners. These statements are no more than opinion."
Continental Bank, 10 F.3d at 1299. See also Nanlawala v. Jack Carl
Associates, Inc., 669 F. Supp. 204, 207 (N.D. Ill. 1987)
(statements that defendant futures trader had "expertise" was
merely "puffing" and statement that defendant would "pick good
trades" was also not actionable because it was merely a prediction
of future investment success).
We hold that Arbor's comments regarding Farrell's
intelligence, innovativeness and industrious nature represent mere
opinion and, therefore, cannot form the basis of an action for
fraudulent misrepresentation.
After the trial court's dismissal of plaintiffs' original
complaint and first amended complaint, which set forth only one
cause of action for intentional misrepresentation, plaintiffs'
second amended complaint set forth claims for fraudulent
concealment and negligent misrepresentation in addition to the
claim for fraudulent misrepresentation. Plaintiffs point out that
in cases of fraudulent misrepresentation based on omission
(fraudulent concealment) it has been held that:
"[i]n order to prove the concealment amount-
ed to a fraudulent misrepresentation the plain-
tiff must prove: (1) the concealment of a mat-
erial fact; (2) the concealment was intended to
induce a false belief, under circumstances cre-
ating a duty to speak [citation]; (3) the inno-
cent party could not have discovered the truth
through a reasonable inquiry or inspection, or
was prevented from making a reasonable inquiry
or inspection, and relied upon the silence as a
representation that the fact did not exist;
(4) the concealed information was such that
the injured party would have acted different-
ly had he been aware of it; and (5) that re-
liance by the person from whom the fact was con-
cealed led to his injury." Stewart v. Thrasher,
242 Ill. App. 3d 10, 16 (1993).
In applying this holding to the instant case, there is no
question that the Arbor letter failed to disclose a material fact
which, if known to plaintiffs, would have caused them to act
differently. As to the requirement of "under circumstances
creating a duty to speak," in Illinois, in order to prove fraud by
the intentional concealment of a material fact, it is necessary to
show the existence of a special or fiduciary relationship, which
would raise a duty to speak. Magna Bank v. Jameson, 237 Ill. App.
3d 614, 618 (1992); Lidecker v. Kendall College, 194 Ill. App. 3d
309, 317 (1990). There is no duty to speak absent a fiduciary or
other legal relationship between the parties. Magna Bank, 237 Ill.
App. 3d at 618; Warner v. Lucas, 185 Ill. App. 3d 351, 355 (1989).
The burden of proving that a fiduciary relationship exists lies
with the party seeking relief. Magna Bank, 237 Ill. App. 3d at
618.
Plaintiffs cite several cases in support of their position
that defendants should be held liable for fraudulent concealment.
In five of these cases, Kinsey v. Scott, 124 Ill. App. 3d 329
(1984), Tan v. Boyke, 156 Ill. App. 3d 49 (1987), Stewart v.
Thrasher, 242 Ill. App. 3d 10 (1993), Heider v. LeeWards Creative
Crafts, Inc., 245 Ill. App. 3d 258 (1993), and Mitchell v. Skubiak,
248 Ill. App. 3d 1000 (1993), there was a buyer-seller relationship
between the parties. City of Chicago v. American National Bank &
Trust Co., 233 Ill. App. 3d 1031 (1992), involved a landlord-tenant
relationship.
Plaintiffs cite St. Joseph Hospital v. Corbetta Construction
Co., 21 Ill. App. 3d 925 (1974), as the leading Illinois case on
"half-truths" for its holding that "a statement which is
technically true as far as it goes may nevertheless be fraudulent,
where it is misleading because it does not state matters which
materially qualify the statement as made. In other words, a half-
truth is sometimes more misleading than an outright lie." St.
Joseph Hospital, 21 Ill. App. 3d at 952-53. However, the defendant
in St. Joseph Hospital was a manufacturing firm that had made
representations to a construction firm building part of a hospital
that its paneling was not "flame rated." In fact the paneling had
been tested and found to have a flame spread 17 times greater than
the maximum allowed under the Chicago building code. While there
was no privity in the traditional sense, this court held the
manufacturing firm liable for damages. The defendant manufacturing
firm did supply the defective paneling which was installed in the
hospital. No such relationship exists here.
Plaintiffs rely on Union National Bank & Trust Co. v.
Carlstrom, 134 Ill. App. 3d 985 (1985), for its holding "[a] party
may assume a duty to disclose information accurately by its
conduct. That clearly was the case here. The bank voluntarily
gave a detailed description of the Carlstrom's [sic] dealings with
the Bank. In so doing, it undertook a duty not to deliberately
conceal or misrepresent." Union National Bank, 134 Ill. App. 3d at
989. In that case, the plaintiff was a bank customer, and more
importantly, the allegedly misleading information concerned the
Carlstroms' account and was very detailed. This is not the case
here.
In the instant case, plaintiffs admit that they had no prior
relationship of any kind with Arbor and had no fiduciary
relationship with the Chicago Board of Trade. There were no prior
or anticipated business dealings between either the Chicago Board
of Trade or Arbor and FESAG. In fact, the sole contact between the
parties was Arbor's letter of reference. Further, it was Farrell
who asked Arbor for the letter of reference. Based on the failure
of plaintiffs to allege that a special or fiduciary relationship
existed between plaintiffs and defendants, the trial court's
dismissal of plaintiffs' fraudulent concealment claim must be
affirmed.
Negligent misrepresentation has essentially the same elements
as fraudulent misrepresentation, except that the defendant's mental
state is different. The defendant need not know that the statement
is false. His own carelessness or negligence in ascertaining its
truth will suffice for a cause of action. For negligent
misrepresentation, a plaintiff must also allege that the defendant
owes a duty to the plaintiff to communicate accurate information.
Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 452 (1989).
Defendants assert that Illinois law will not support a cause
of action sounding in negligent misrepresentation for purely
economic loss unless the misrepresentation is made by one who is in
the business of supplying information for the guidance of others
in their business transactions, citing University of Chicago
Hospitals v. United Parcel Service, 231 Ill. App. 3d 602 (1992),
which relied on Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69 (1982).
In Moorman, our supreme court held that a manufacturer could
not be held liable under a negligent misrepresentation theory for
economic losses caused. However, economic loss is recoverable
"where one who is in the business of supplying information for the
guidance of others in their business transactions makes negligent
representations." Moorman Manufacturing Co., 91 Ill. 2d at 88-89.
Rozny v. Marnul, 43 Ill. 2d 54 (1969), held that purchasers of
residential housing could recover against a surveyor for the
negligently inaccurate representations of the survey that caused
economic loss to the purchasers even though no privity of contract
existed between the purchasers and surveyor. Plaintiffs correctly
point out that in considering the holdings in these cases, in Board
of Education v. A, C & S, Inc., our supreme court said, "[w]e do
not believe that Moorman and Rozny conclusively resolve the
question of when and against whom a plaintiff may recover economic
losses for a negligent misrepresentation." A, C & S, Inc., 131 Ill. 2d at 454. Here, however, plaintiffs have failed to show that
defendants owed any duty to plaintiffs to communicate accurate
information.
Further, no recovery for fraudulent misrepresentation,
fraudulent concealment or negligent misrepresentation is possible
unless plaintiffs can prove justifiable reliance, i.e., that any
reliance was reasonable. In determining whether there was
justifiable reliance, it is necessary to consider all of the facts
within a plaintiff's actual knowledge as well as those which he
could have discovered by the exercise of ordinary prudence. Marino
v. United Bank of Illinois, N.A., 137 Ill. App. 3d 523, 527 (1985),
citing Soules v. General Motors Corp., 79 Ill. 2d 282, 286 (1980).
If ample opportunity existed to discover the truth, then reliance
is not justified. Central States Joint Board v. Continental
Assurance Co., 117 Ill. App. 3d 600, 607 (1983). Here, plaintiffs
admit they made no inquiry into Farrell's background other than
their request to him that he supply a letter of reference from
Arbor. Plaintiffs do not assert that they were prevented from
making a further inquiry.
"A plaintiff has a duty to investigate further when the
circumstances reasonably require, as a matter of prudence, that an
investigation be undertaken. [Citation.] *** In short, the crucial
question is whether the plaintiffs' conduct was unreasonable under
the circumstances and "'in light of the information open to him,
that the law may properly say that this loss is his own
responsibility.'" [Citation.]" West v. Western Casualty & Security
Co., 846 F.2d 387, 394 (7th Cir. 1988).
Plaintiffs were hiring Farrell for a position in which he
would have the ability to bind FESAG to any decision Farrell made
in the futures industry. This potentially involved access to vast
amounts of money in a volatile situation. In spite of this, FESAG
and Neptuno assert that their reliance on Arbor's three-sentence
letter as the sole support for their hiring decision was
reasonable.
Plaintiffs correctly point out that whether a plaintiff's
reliance was reasonable is usually a question of fact and should be
properly decided by the trier of fact. "Where it is apparent from
the undisputed facts, however, that only one conclusion can be
drawn, the question becomes one for the court." Witherell v.
Weimer, 85 Ill. 2d 146, 156 (1981), rev'd on other grounds, 118 Ill. 2d 321 (1987). Here, plaintiffs' own factual allegations
establish that plaintiffs' alleged reliance was unreasonable as a
matter of law. Illinois courts have held that rulings on motions
to dismiss generally do not dispose of actions, but allow
plaintiffs an opportunity to amend their complaints unless it
becomes apparent that there is no set of facts that could be
pleaded that would entitle a plaintiff to recover. University of
Chicago Hospitals v. MPS, 231 Ill. App. 3d 602, 605 (1992). Here,
there is no set of facts that could be pleaded that would entitle
plaintiffs to recover.
Finally, defendants point to two out-of-state employment
referral cases as support for their position. In Moore v. St.
Joseph Nursing Home, Inc., 184 Mich. App. 766, 459 N.W.2d 100, a
summary dismissal was affirmed because a former employer had no
duty to disclose a former employee's violent conduct to a
prospective employer, even though the employee had received 24
disciplinary warnings. In Janssen v. American Hawaii Cruises,
Inc., 69 Haw. 31, 731 P.3d 163, a former employee of a cruise line
who had been sexually assaulted by another former employee sued
their former employer and the union that had referred the attacker
for employment. The Hawaii Supreme Court held that the union's
contractual duty to refer prospective employees did not obligate it
to investigate or screen applicants, and thus the union owed no
such duty to the person attacked and no duty existed between the
former employer and the person attacked.
Our research reveals that two other jurisdictions have taken
a different view of these "negligent referral" cases. In Randi W.
v. Muroc Joint Unified School District, 14 Cal. 4th 1066, 929 P.2d 582, 60 Cal. Rptr. 2d 263 (1997), a student sued a school
administrator who allegedly sexually assaulted her and the
administrator's former employers who gave him a positive
recommendation.
The California Supreme Court held that: (1) the writer of a
recommendation letter owes to prospective employers and third
persons a duty not to misrepresent the facts in describing the
qualifications and character of the former employee, if making the
misrepresentations would present a substantial, foreseeable risk of
physical injury to the prospective employer or third persons; (2)
the former employers owed a duty to the plaintiff student not to
misrepresent the qualifications and character of the administrator
who allegedly committed the assault; (3) letters from the
administrator's former employers made affirmative misrepresenta-
tions by positively evaluating the administrator's character and
rapport with students without disclosing that disciplinary actions
had been taken against him for alleged sexual misconduct with
students; and (4) the student was not required to allege that she
herself relied on the employer's misrepresentations, but only that
her injury resulted from action taken by the recipient of the
misrepresentations in reliance on them.
In Golden Spread Council, Inc. No. 562 of the Boy Scouts of
America v. Akins, 926 S.W.2d 287 (Tex. 1996), a boy scout sued the
Boy Scouts of America and the local boy scout council after the
scout was allegedly sexually molested by a scoutmaster. The Texas
Supreme Court held that the local boy scout council owed a duty to
the potential troop sponsor that asked the council to introduce it
to a potential scoutmaster. This duty extended to children and
parents involved in the troop who relied on the council's
recommendation. The council's affirmative act of recommending the
scoutmaster created a duty to use reasonable care in light of
information the local council had received about the scoutmaster's
alleged prior conduct with other boys.
We decline to follow either line of cases here. Illinois has
not recognized a cause of action for "negligent referral" and this
is certainly not the case to decide this issue.
For the foregoing reasons, the trial court's dismissal of
plaintiffs' complaint is affirmed.
Affirmed.
THEIS and ZWICK, JJ., concur.
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