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04/21/88 Competitive Food Systems, v. Jules Laser Et Al.

April 21, 1988

COMPETITIVE FOOD SYSTEMS, INC., PLAINTIFF-APPELLANT

v.

JULES LASER ET AL., INDIV. AND AS PARTNERS IN LASER, SCHOSTOK, KOLMAN & FRANK, ET AL., DEFENDANTS AND THIRD-PARTY PLAINTIFFS-APPELLEES (SILVERTRUST, CHULOCK & STEWART, ET AL., THIRD-PARTY, DEFENDANTS)



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

524 N.E.2d 207, 170 Ill. App. 3d 606, 120 Ill. Dec. 442

Appeal from the Circuit Court of Lake County, Trial Court Number: 83L789; the Hon. Bernard Drew, Jr., Judge, presiding.

Supplemental Opinion on Denial of Rehearing filed June 30, 1988 1988.IL.567

APPELLATE Judges:

PRESIDING JUSTICE LINDBERG delivered the opinion of the court. DUNN and WOODWARD, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE LINDBERG

Plaintiff, Competitive Food Systems, Inc. (Competitive), has appealed an order of the circuit court of Lake County granting defendants' motion for summary judgment on plaintiff's complaint alleging legal malpractice and breach of contract. The only issue raised on appeal is whether the trial court properly granted defendants' motion for summary judgment. Although the record consists of several thousand pages, a brief factual background will suffice for an understanding of the issue on appeal.

Competitive is in the business of running a chain of small stores in shopping malls which sell nuts, fruits and other confectionaries. Competitive is owned and managed by Barbara and John Lofquist. Defendants are attorneys and had been general counsel to plaintiff for over one year when defendants helped negotiate an agreement with Rodman and Renshaw (underwriters) for the underwriting of a $1,500,000 private offering in which the underwriters guaranteed to purchase all unsold units of the offering. The underwriting agreement required Competitive to furnish certain data and to produce an offering circular by September 15, 1981. This offering circular was to be used by the underwriters in their solicitation of investors. The underwriting agreement also required the offering circular to comply with all applicable laws of the Securities and Exchange Commission. Defendants agreed to do the legal work required to produce the offering circular specified in plaintiff's agreement with the underwriters. Defendants were to receive a flat fee of $25,000 to be paid out of the proceeds of the underwriting. An offering circular as required by the underwriter's agreement was not produced by September 15, 1981. Sometime between September 15 and November 14, 1981, the underwriters withdrew their guarantee to purchase unsold shares. All parties continued to work on the offering. An offering circular was produced on November 14, 1981, and was used to solicit investors.

The offering failed and transactions terminated. Plaintiffs filed suit against defendants for legal malpractice and for breach of contract due to defendants' failure to produce the offering circular by September 15, 1981. Several years of discovery, depositions and pleadings took place until defendants filed the motion for summary judgment which is the subject of this appeal. Defendants' motion for summary judgment was filed 10 days before trial and ruled upon by the trial court the morning of trial.

Defendants' motion for summary judgment consisted of an, as yet, unraised affirmative defense to plaintiff's complaint alleging legal malpractice and breach of contract. Defendants' affirmative defense alleged that the financial projections that would be required to be part of the offering circular were "unreasonable" and "materially false." Defendants argued that these projections were prepared by John Lofquist, Competitive's owner. The projections would be material misstatements and misleading and, therefore, a violation of Rule 10b -- 5 of the Securities and Exchange Commission (17 C.F.R. § 240.10b -- 5 (1979)). Therefore, any offering circular produced by defendants on or before September 15, 1981, containing plaintiff's projections would have been illegal as a matter of law. Defendants contend that they are not liable, as a matter of law, for failing to help plaintiff commit an illegal act. Defendants also argued in their motion for summary judgment: (1) that plaintiffs could not establish the "but for" element of proximate cause required for liability under the theory of legal malpractice; and (2) that the unresolved status of a required trademark and disputed noncompetition clause prevented defendants from performing their obligations, and, therefore, as a matter of law, defendants could not be liable to plaintiff. The trial court found genuine issues of material fact as to these arguments, and they are not at issue on this appeal, in spite of extensive argument addressed to these issues on appeal by the parties.

The trial court found no genuine issue of material fact as to the financial projections and granted defendants' motion for summary judgment, concluding as a matter of law that defendants could not be held liable for failing to produce the offering circular by September 15, 1981. The trial court's order stated in relevant part:

"Though there is a possibility that an extremely liberal interpretation of the pleadings could show that there may be a genuine issue of material fact with respect to:

Initially, we note that the affirmative defense raised by defendants was a proper subject upon which the trial court could rule in a motion for summary judgment. An affirmative defense may be raised in a motion for summary judgment even though not raised in the pleadings. (Midwest Bank & Trust Co. v. Village of Lakewood (1983), 113 Ill. App. 3d 962, 447 N.E.2d 1358.) Although there may exist an issue of fact, the trial court, when viewing the evidence in the light most favorable to the nonmoving party, may grant summary judgment where it concludes that, as a matter of law, no liability exists. (113 Ill. App. 3d 962, 447 N.E.2d 1358.) On review of the trial court's granting of summary judgment, we must determine whether (1) the trial court was correct in finding no genuine issue of material fact existed and (2) that entry of summary judgment was correct as a matter of law. (Bauer v. City of Chicago (1985), 137 Ill. App. 3d 228, 484 N.E.2d 422.) Summary judgment is a drastic measure, to be granted only where the evidence, construed most strongly against the moving party, establishes clearly and without doubt the right thereto. Becovic v. Harris Trust & Savings Bank (1984), 128 Ill. App. 3d 107, 469 N.E.2d 1379.

First, we address the law concerning defendants' affirmative defense. It is based on the well-established rule that the court will not aid a fraud-feasor, who invokes the court's jurisdiction, to profit from his own fraud by recovering damages. This rule is based on the rationale that the courts will refuse to aid anyone who seeks to base his cause of action upon an illegal or immoral act or transaction. (Mettes v. Quinn (1980), 89 Ill. App. 3d 77, 411 N.E.2d 549.) In Mettes, the appellate court affirmed the dismissal of the plaintiff's complaint where the plaintiff sought to recover damages for the allegedly faulty advice given by her attorney which allowed the plaintiff's fraud to be uncovered. This rule and, thus, defendants' affirmative defense is applicable to count I alleging legal malpractice and count II alleging breach of contract. (Tovar v. Paxton Community Memorial Hospital (1975), 29 Ill. App. 3d 218, 330 N.E.2d 247 (the rule that plaintiff will not be permitted to profit by his own wrong by recovering damages applies to a complaint alleging the same acts amounted to breach of contract and tort).) It is clear that in order for defendants' affirmative defense to succeed, plaintiff must have sought to commit a fraud or other illegal act. An illegal or fraudulent act on ...


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