Appeal from the Circuit Court of Du Page County. No. 93--CH--408. Honorable Bonnie M. Wheaton, Judge, Presiding.
Released for Publication November 5, 1996.
The Honorable Justice Geiger delivered the opinion of the court: Doyle and Thomas JJ., concur.
The opinion of the court was delivered by: Geiger
JUSTICE GEIGER delivered the opinion of the court:
Richard Lucas, John Helander, and Norma Helander (the plaintiffs) appeal from the order of the circuit court of Du Page County granting summary judgment in favor of defendant Ogilvie & Taylor Securities Corporation (Ogilvie). In their complaint, the plaintiffs alleged violations of the Illinois Securities Law of 1953 (the Act) (815 ILCS 5/1 et seq. (West 1994)) and sought rescission of their purchase of certain units in a limited partnership. The trial court ruled that the plaintiffs' action was barred under the applicable statute of limitations and that any misconduct committed by Ogilvie had been negated by the plaintiffs' failure to exercise reasonable diligence in deciding to invest in the subject limited partnership. The plaintiffs appeal, arguing (1) that the action was not time-barred, as it had been initiated within three years from the time the alleged violations were first discovered; and (2) that genuine issues of material fact existed as to whether the partnership's prospectus contained material misrepresentations and omissions in violation of the Act. We affirm in part, reverse in part, and remand for further proceedings.
On December 12, 1988, the plaintiffs each signed subscription agreements for the purchase of units in a limited partnership knownas the Downtown Greenville Investors Limited Partnership (the partnership). Lloyd DeJong, an agent for Ogilvie, had recommended the partnership to the plaintiffs as an investment opportunity. Lucas purchased one unit in the partnership for $50,000; the Helanders purchased one-half of a unit for $25,000. Prior to their respective purchases of these units, each of the plaintiffs received a private placement memorandum (PPM), a type of prospectus containing information regarding the limited partnership and the proposed investment.
The subject partnership was organized under the laws of the state of South Carolina, with its principal place of business in Greenville, South Carolina. The partnership was formed on September 22, 1988, as a venture between defendants John T. Snipes and Financial Services of Greenville, Inc. Defendant SSV Securities, Inc., a South Carolina corporation, acted in South Carolina as the partnership's agent and broker for purposes of selling units in the partnership.
According to the PPM received by the plaintiffs, the partnership's purpose was to acquire, own, and operate an office building known as the South Carolina National Bank Building (the building), located in Greenville, South Carolina. The building was to be purchased from the U.S. Shelter Corporation for over $6 million. The partnership property to be purchased was described in the PPM as follows:
"The Partnership Property consists of an [sic] nine-story office building known as the South Carolina National Bank Building, containing approximately 166,000 square feet of gross area and 150,000 square feet of leasable area, along with certain small adjoining lots consisting of several smaller buildings which the partnership proposes to demolish for the purpose of creating a "green space" adjoining the office building. The Partnership will be purchasing a leasehold interest in the real property where the building is located and a fee interest (legal title) in the adjoining lots from which the "Green Space" will be created. The contract of sale also requires seller to negotiate an option to purchase the leasehold interest and assign that to the Partnership. " (Emphasis added.)
The plaintiffs believed that the underscored sentence required U.S. Shelter to negotiate an option to purchase the land on which the building stood and that the option would be assigned to the partnership at the time of closing.
An engineering report authored by Michael Crowe, P.E., and dated September 23, 1988, was attached to the PPM received by the plaintiffs. The report had been completed after an inspection of the building was conducted by various engineers with backgrounds instructures, electrical, piping, heating, ventilation, and air conditioning. The report concluded that the building was structurally, electrically, and mechanically sound and that it had been "very well maintained over its life of approximately 14 years." The report, which outlined specific problem areas on each floor of the building, disclosed no major problems relating to the eighth and ninth floors of the building.
On February 1, 1989, the partnership advised the plaintiffs that it had successfully acquired the building. The partnership, however, did not disclose whether it had acquired an option to purchase the land under the building.
In a letter dated March 2, 1992, Snipes advised the plaintiffs that the partnership was in a "difficult" financial condition. Snipes indicated that a group of California investors had declined to make their final installment of approximately $200,000 because the partnership had failed to secure an option to purchase the land under the building. In his letter, Snipes indicated that the partnership had, in fact, acquired the option, but he did not indicate when the option had been purchased or whether the option would be exercised. Snipes explained that, due to the partnership's poor financial condition, a capital call of $750,000 might be necessary from the partners. The plaintiffs assert that it was not until they received this letter that they learned that the partnership had not secured an option to purchase the land at the time of closing.
In a letter dated July 15, 1992, Ogilvie informed the plaintiffs that it had been unsuccessful in its attempt to secure Alan LeVow as a replacement general partner. A report authored by Alan LeVow, which detailed the multitude of problems associated with the building, was attached to Ogilvie's letter. Of particular concern to LeVow was the deteriorating physical condition of the building. Levow's report stated:
"The physical condition of the [building] is poor. The [heating, ventilation and air conditioning] system makes so much noise and vibrates so significantly that it is literally impossible to lease the top two floors of the building, floors 8 and 9. Not surprisingly, these two floors have never been occupied in the 18 years in which the building has been opened. The building manager indicated that it would cost anywhere between $100,000 to $250,000 to correct the noise and ventilation problems. ***
The building manager also informed me that the building did not meet fire and elevator codes. In fact, she has been on notice for approximately two years from different government officialsabout the code violations. She estimates it will take approximately $120,000 to bring the building up to code. She is concerned that if this is not acted upon soon the building could be closed."
It was not until the receipt of this letter that the plaintiffs became aware of the poor physical condition of the building and the difficulty in leasing the eighth and ninth floors. Indeed, based on the engineering report which the plaintiffs received at the time of their initial subscription, they believed that the building was in good structural and mechanical condition.
On October 20, 1992, plaintiff Lucas notified the general partners of his election to rescind his purchase in the partnership and demanded a refund of his $50,000 investment, with interest. On December 1, 1992, the Helanders also notified the general partners of their election to rescind their purchase in the partnership and demanded a refund of their $25,000 investment, with interest. The partnership refused to honor the plaintiffs' rescission election.
On April 28, 1993, the plaintiffs filed a six-count complaint against the partnership, as well as Financial Services of Greenville, Inc., SSV Securities, Inc., Snipes, and Ogilvie. Counts I, III, and V of the complaint were brought on behalf of Lucas, and identical Counts II, IV, and VI were brought on behalf of the Helanders. Counts I and II alleged that all of the defendants had violated sections 12(F), (G), (H), and (I) of the Act (815 ILCS 5/12(F) through (I) (West 1994)), by making material misrepresentations and omissions in the PPM regarding the land purchase option and the building's physical condition and leasing history. Counts III and IV were directed against Snipes, the partnership, and Financial Services of Greenville, alleging that they fraudulently induced the plaintiffs to purchase their respective partnership interests. Counts V and VI were directed against Snipes and Financial Services of Greenville, alleging an action for breach of fiduciary duty.
On July 8, 1993, the trial court entered default judgments against Snipes, the partnership, and Financial Services of Greenville. The trial court subsequently entered money judgments in favor of the plaintiffs against these defendants.
On November 4, 1993, the plaintiffs filed an amended complaint. Counts I and II of the amended complaint alleged that Ogilvie, acting through its agent, Lloyd DeJong, was involved in the business of offering, selling, dealing, trading, and marketing the units of the subject limited partnership. The plaintiffs alleged that they each received a copy of the PPM, which contained the misrepresentations and omissions described above. The plaintiffs alleged that they relied on the information contained in the PPM and would not havepurchased an interest in the partnership had they known of the misrepresentations and omissions contained therein. The plaintiffs alleged that Ogilvie's conduct violated sections 12(F), (G), (H), and (I) of ...