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MBH v. Arbor

March 13, 1998

NEPTUNO TREUHAND-UND VERWALTUNGSGESELLSCHAFT MBH, AND FESAG FINANCIAL ENGINEERING SERVICES, GMBH, PLAINTIFFS-APPELLANTS,
v.
PATRICK H. ARBOR AND CHICAGO BOARD OF TRADE, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County Honorable Gary Brownfield, judge Presiding.

The opinion of the court was delivered by: Justice Quinn

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 ยง538(A) (1977); see also Union Pacific ...


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