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HERNANDEZ v. CHILDERS

November 24, 1992

KEITH HERNANDEZ, Plaintiff,
v.
JOHN H. CHILDERS, TALENT SERVICES, INC., and TALENT NETWORK, INC., Defendants.



The opinion of the court was delivered by: CHARLES RONALD NORGLE, SR.

 ORDER

 Before the court is the motion for summary judgment of defendants John H. Childers ("Childers") and Talent Services, Inc. ("TSI"). For the following reasons, the court denies the motion.

 FACTS1

 The present motion involves a claim for breach of fiduciary duty, common law fraud, and breach of contract against Childers and TSI. Hernandez claims that an investment Childers set up for him as a tax shelter failed miserably. Hernandez claims Childers assured him that the investment was genuinely designed to yield profits, and that if the project succeeded, Hernandez would reap large profits. Also, Childers maintained that Hernandez would receive tremendous tax benefits even if the project failed. Nonetheless, the investment was subject to serious tax risks and failed as both an investment and tax shelter. Moreover, Childers failed to disclose his self-dealing with respect to Hernandez proceeding with the investment, namely his fee or commission from the investment, and both Childers and TSI failed to obtain a review of the investment suitable for Hernandez's financial situation. Specifically, the facts supporting the allegations are as follows.

 After the 1979 baseball season, Childers negotiated a five-year, $ 3.8 million contract for Hernandez in February 1980. Under this contract, Hernandez was to receive a $ 750,000 signing bonus. But because of the threatened magnitude of federal and state income tax liability, Childers suggested that some form of tax shelter investment for Hernandez would be appropriate. Because of Childers's personal involvement in prior investments, he was aware of a research and development program, which eventually came to be known as Sealock, put together by a local tax attorney, Lloyd Shefsky ("Shefsky"). Accordingly, Childers decided to use Sealock as a means by which Hernandez could defer a large sum of taxes.

 Childers next contacted Hernandez's Saint Louis attorney Gerhard Petzall ("Petzall"), and claims to have also contacted Maury Blonder, *fn2" Hernandez's accountant, to review the Sealock project. Hernandez claims that Childers then told Hernandez that the benefits of the investment would be lost unless Hernandez immediately signed the offering materials. He did so. But because a review of Sealock had not yet been completed, the materials were placed in escrow to await a review. Nonetheless, Childers subsequently proceeded with the transaction by directing Shefsky to take the signed documents and Hernandez's check out of escrow. According to Hernandez, Childers did so without receiving any review. Hernandez further claims Childers assured Hernandez the investment was favorably reviewed.

 Hernandez enjoyed a large tax deduction. However, on October 6, 1982, Childers received a letter from the Internal Revenue Service ("IRS") disclosing that the IRS was challenging Hernandez's 1980 tax return and that Sealock was one of the reasons for the challenge. Hernandez claims he never received a copy of this letter, which Childers claims was forwarded to Hernandez. Nonetheless, on November 5, 1982, Hernandez executed a power of attorney authorizing Shefsky to represent him in the tax matter. One of Childers's assistants sent a letter dated August 25, 1983 asking Hernandez to send in a form for a common defense fund in regard to Sealock, with which other investors were apparently having similar difficulties. The IRS subsequently disallowed the tax deduction and Sealock later dissolved with a loss of nearly all of Hernandez's $ 245,000 investment. Consequently, Hernandez became liable for back taxes and paid the IRS some $ 800,000 around 1989.

 In their motion for summary judgment, Childers and TSI assert that Hernandez's claims for fraud and breach of fiduciary duty are barred by the applicable five-year statute of limitations. In the alternative, Childers and TSI assert that the evidence establishes Childers did not breach his fiduciary duty, no fraud was committed, and TSI did not breach its contract as a matter of law. The court will address each issue in turn.

 DISCUSSION

 Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The non-moving party is required to go beyond the pleadings to designate specific facts showing a genuine issue for trial. Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991). All reasonable inferences are drawn in favor of the party opposing the motion. Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1440 (7th Cir. 1992). Nonetheless, a dispute about a material fact is "genuine" only if the evidence is such that a reasonable jury could return a verdict for the non-moving party, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986), and disputed facts are material if they might affect the outcome of the suit, First Ind. Bank v. Baker, 957 F.2d 506, 508 (7th Cir. 1992).

 Initially, the court must address whether Hernandez's breach of fiduciary duty and fraud claims are time-barred. In Illinois, the statute of limitations for fraud and breach of fiduciary duty is five years. Ill. Rev. Stat. ch. 110, P 13-205 (1989); Luminall Paints, Inc. v. LaSalle Nat'l Bank, 220 Ill. App. 3d 796, 581 N.E.2d 191, 195, 163 Ill. Dec. 240 (1991). The time begins to run once the plaintiff knows or reasonably should have known of his or her injury and that the injury was wrongfully caused. Superior Bank FSB v. Golding, No. 71959, 1992 Ill LEXIS 159, at *11 (Ill. Oct. 22, 1992); Bashton v. Ritko, 164 Ill. App. 3d 37, 517 N.E.2d 707, 710, 115 Ill. Dec. 296 (1987). The court finds that Hernandez's claims are not time-barred because the uncontroverted evidence does not establish that a reasonable person in ...


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