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03/21/96 ARLIE J. REIN ET AL. v. DAVID A. NOYES &

March 21, 1996

ARLIE J. REIN ET AL., APPELLANTS,
v.
DAVID A. NOYES & COMPANY ET AL., APPELLEES.



The Honorable Justice Miller delivered the opinion of the court: Justice McMORROW took no part in the consideration or decision of this case.

The opinion of the court was delivered by: Miller

The Honorable Justice MILLER delivered the opinion of the court:

On March 17, 1993, plaintiffs, Arlie J. Rein, Brenda H. Rein, Robert H. Miller, Donald C. Miller, and Lorraine Fehrmann, filed a 12-count complaint in the circuit court of Kane County against defendants, David A. Noyes and Company (Noyes), a securities dealer, and its agents, John F. Rath and Ronald E. Ainsworth. The complaint alleged that defendants fraudulently misrepresented the character of certain securities that they had sold to plaintiffs in 1985. Plaintiffs sought recovery under various theories of law. The trial judge dismissed the complaint pursuant to section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 1992)), finding that the claims were barred by the doctrine of res judicata and also by the applicable statutes of limitations. On appeal, the appellate court, with one justice dissenting, affirmed the dismissal of plaintiffs' complaint. 271 Ill. App. 3d 768, 649 N.E.2d 64, 208 Ill. Dec. 232. We granted plaintiffs' petition for leave to appeal (155 Ill. 2d R. 315(a)) and, for the reasons that follow, affirm the judgment of the appellate court.

I. BACKGROUND

On October 11, 1990, the Reins and Millers filed an eight-count complaint (Rein-Miller complaint) in the circuit court of Kane County against defendants, Noyes and Rath. The first four counts contained the Reins' causes of action, and the last four counts contained the Millers' causes of action. Counts I and V alleged that the Reins and Millers were customers of Noyes, and that during 1985, on the recommendation of Noyes, through Rath, the Reins and Millers purchased certain securities known as "City of Richmond, Indiana Economic Development Revenue Bonds" (Richmond bonds). The bonds were dated June 20, 1985. The complaint further alleged that Noyes and Rath willfully, fraudulently, and deceitfully omitted to inform the Reins and Millers and concealed from them material facts relating to the bonds in violation of sections 12(F) and 12(G) of the Illinois Securities Law of 1953 (Act) (Ill. Rev. Stat. 1989, ch. 121 1/2, pars. 137.12(F), ((G)). Specifically, the complaint maintained that Noyes and Rath caused the Reins and the Millers to believe that the bonds in question were governmental, municipal bonds for which the City of Richmond would be liable for payment of principal and interest. In actuality, however, the bonds were high-risk investments in a private hotel project for which the City of Richmond would not be liable for payment of principal or interest. The complaint therefore claimed that the Reins and the Millers were entitled to rescind the purchase of the securities pursuant to section 13 of the Act and recover the full amount paid for the securities plus interest (Ill. Rev. Stat. 1989, ch. 121 1/2, par. 137.13(A)(1)). The complaint additionally alleged that the Reins and the Millers became aware of the fraudulent misrepresentation of the securities in August 1990.

The remaining counts of the complaint were all based on the same factual allegations as counts I and V. However, count II asserted that the Reins purchased the securities on October 30, 1985, while count VI alleged that the Millers purchased the securities on June 20, 1985. Counts II and VI of the complaint sought recovery under a theory of common law fraud and for failure to register the securities and provide a prospectus as required by the Act. Counts III and VII sought punitive damages based on common law fraud. Counts IV and VIII sought recovery on the theory of breach of fiduciary duty.

On December 27, 1990, Fehrmann filed a four-count complaint against Noyes and Ainsworth. Fehrmann's complaint was based on allegations similar to those contained in the Rein-Miller complaint. Specifically, Fehrmann's complaint alleged that during 1985, Noyes, through Ainsworth, willfully, fraudulently, and deceitfully induced her to purchase Richmond bonds, dated June 20, 1985. The first count of Fehrmann's complaint, styled "Count IX," sought rescission under the same theory as the Rein-Miller complaint and alleged that Fehrmann became aware of the fraudulent misrepresentation of the securities in November 1990. Count X asserted that the sale of the securities to Fehrmann occurred on October 29, 1985. In all respects, the legal basis of each of the four counts of Fehrmann's complaint was the same as that of the analogous counts of the Rein-Miller complaint. On defendants' motion, the rescission count of Fehrmann's complaint (count IX) was consolidated with the Rein-Miller complaint.

Defendants moved pursuant to section 2-619(a)(5) of the Code (Ill. Rev. Stat. 1989, ch. 110, par. 2-619(a)(5)) to dismiss the rescission counts of the complaints (counts I, V, and IX) on the ground that the claims were barred by the limitations period contained in section 13(D) of the Act (see Ill. Rev. Stat. 1989, ch. 121 1/2, par. 137.13(D)). The trial judge subsequently granted defendants' motion and dismissed with prejudice the counts seeking rescission, finding that they were barred by the limitations period in section 13(D) of the Act.

Following the trial judge's order, plaintiffs filed a motion for reconsideration and a motion for leave to file an amended complaint. In the motion for leave to amend, plaintiffs sought leave to plead the doctrine of equitable estoppel, which plaintiffs contended overrode the statute of limitations bar. In the motion for reconsideration, plaintiffs argued, among other things, that the trial judge erred in determining that plaintiffs could not plead equitable estoppel in defending against defendants' statute of limitations argument. The trial judge denied the motions. With regard to the motion for leave to amend, the trial judge noted that any proposed amendment seeking to assert equitable estoppel as a defense would still invoke the provisions of the Act in order to seek rescission of the securities purchases. The trial judge found that equitable estoppel could not be used to override the statutory limitations period because the claims would still be controlled by the limitations period in section 13(D) of the Act. Consequently, the trial judge denied the motion pursuant to the earlier ruling that such claims were barred by the limitations provisions in section 13(D). The trial judge further refused to make a Rule 304(a) finding (155 Ill. 2d R. 304(a)) that there was no just reason to delay enforcement or appeal of the dismissal of the rescission counts.

On August 23, 1991, plaintiffs voluntarily dismissed the remaining counts of their complaints pursuant to section 2-1009(a) of the Code (Ill. Rev. Stat. 1991, ch. 110, par. 2-1009(a)). Plaintiffs then appealed the dismissal of the rescission counts. On appeal, the appellate court affirmed the dismissal, finding that the rescission counts were barred by the limitations period in section 13(D) of the Act. Rein v. David A. Noyes & Co., 230 Ill. App. 3d 12, 172 Ill. Dec. 204, 595 N.E.2d 565 (1992). For purposes of clarity, this appellate court opinion and the proceedings leading up to it will be identified as Rein I.

On March 17, 1993, approximately 19 months after plaintiffs voluntarily dismissed the remaining counts of their complaints, plaintiffs filed a 12-count complaint against defendants. Counts I through IV contained the Reins' causes of action; counts V through VIII contained the Millers' causes of action; and counts IX through XII contained Fehrmann's causes of action. The present complaint was virtually identical to the complaints filed in 1990. Like the 1990 complaints, the present complaint alleged that plaintiffs purchased the Richmond bonds based on the recommendations and urging of defendants and that defendants fraudulently misrepresented the nature of these securities. The complaint again sought rescission of plaintiffs' securities purchases pursuant to section 13(A)(1) of the Act (counts IV, VIII, and XII). The complaint also again sought relief under the theories of common law fraud (counts I, V, and IX) and breach of fiduciary duty (counts III, VII, and XI), and sought punitive damages based on common law fraud (counts II, VI, and X) (common law counts). The only material differences between the present complaint and the 1990 complaints were that the rescission counts in the present complaint claimed that defendants were equitably estopped from raising limitations or repose periods contained in the Act as a bar to the action because it was defendants' conduct that prevented plaintiffs from learning the true nature of the securities until after the expiration of the limitations period. The three counts of common law fraud in the complaint also contained allegations that the action was brought within the limitations period based on the time in which plaintiffs discovered the fraud and that the existence of a fiduciary relationship between the parties tolled the running of the limitations statute.

Defendants thereafter filed a motion to dismiss the entire complaint pursuant to section 2-619 of the Code (735 ILCS 5/2-619 (West 1992)). The trial judge subsequently granted defendants' motion, finding that both the rescission and the common law counts of plaintiffs' complaint were barred by the doctrine of res judicata. Moreover, the trial judge held that the rescission counts were also barred by the statute of limitations in section 13-205 of the Act and that the common law counts were barred by the five-year statute of limitations in section 13-205 of the Code (735 ILCS 5/13-205 (West 1992)). The trial judge further denied plaintiffs' motion to make the final judgment more specific. All other post-trial motions were denied.

On appeal, a divided appellate court affirmed the dismissal of plaintiffs' complaint. 271 Ill. App. 3d 768, 649 N.E.2d 64, 208 Ill. Dec. 232. For purposes of clarity, the appellate court's opinion here and the proceedings leading up to it will be designated as Rein II. On appeal, plaintiffs argued that res judicata did not bar the rescission counts because the issue in the present suit was whether the principle of equitable estoppel overrode the statute of limitations defense, while the issue in Rein I was whether the rescission counts were barred by section 13(D) of the Act. In rejecting plaintiffs' argument, the majority held that the doctrine of res judicata prohibits the relitigation not only of those issues which were actually raised in the first proceeding, but also any issues that might have been raised. 271 Ill. App. 3d at 771. The majority concluded that since the principle of equitable estoppel could have been raised in response to the statute of limitations defense advanced by defendants in Rein I, the rescission counts were properly dismissed as being barred by res judicata. 271 Ill. App. 3d at 771.

As to the common law counts, the majority concluded that these claims were based on the same set of operative facts as the rescission counts. Thus, the majority held that res judicata barred the litigation of the common law counts because they could have been decided in Rein I. Moreover, the majority determined that although plaintiffs asserted different theories of recovery, they had only a single case of action because the same set of facts gave rise to both the rescission and the common law counts. Consequently, the majority concluded that plaintiffs violated the rule against claim-splitting by attempting to litigate the rescission and the common law counts in separate suits. In reaching this conclusion, the majority acknowledged the tension between the rule against splitting a cause of action and the language of section 2-1009 of the Code, which authorizes the refiling of an action, in whole or in part, within one year following a voluntary dismissal without prejudice. The majority concluded, however, that section 2-1009 was not intended to automatically ...


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