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Los Amigos Supermarket Inc. v. Metropolitan Bank and Trust Co.

June 17, 1999



The opinion of the court was delivered by: Justice Hall

Following trial, the jury returned a verdict in favor of third-party plaintiff Ernesto A. Avina (Avina) and against third-party defendant Ray O. Rodriguez (Rodriguez), in Avina's action for fraud. The jury assessed compensatory damages in the amount of $183,024 and punitive damages in the amount of $450,000. Rodriguez filed a post-trial motion seeking, alternatively, a judgment notwithstanding the verdict (Judgment n.o.v.), a new trial, or a remittitur of the compensatory and punitive damages. The trial court remitted the punitive damages to $180,000 but denied the remainder of the motion. Rodriguez now appeals. Avina cross-appeals from the trial court's order directing a finding in favor of Rodriguez on Avina's negligence claim. We reverse the judgment of the circuit court and remand for a new trial.

This case involves the improved parcel of real estate commonly known as 117-23 North Broadway, Melrose Park, Illinois (the Property), which is held in a land trust of which the Metropolitan Bank and Trust Company (the trustee) is the trustee and Avina is the sole beneficiary. Pursuant to a lease dated August 1, 1985, Los Amigos Supermarket, Inc. (Los Amigos), operated a supermarket on the Property.

In 1990, Los Amigos filed a verified complaint for declaratory judgment and reformation in the chancery division, against the trustee and Avina, seeking to construe the terms of the lease. Avina filed a counterclaim against Los Amigos and Hector and Samuel Porras for a constructive trust and accounting. Hector and Samuel Porras are the brothers-in-law of Rodriguez and the sole shareholders of Los Amigos. Avina also filed a third-party complaint against Rodriguez alleging fraud and negligence. Avina alleged that Rodriguez, his personal attorney, had fraudulently assigned Avina's interest in Los Amigos to one or both of the Porrases and had prepared a lease allowing Los Amigos to rent the property at a rate substantially below the fair market value. He further alleged that he had paid Rodriguez and Los Amigos sums totaling $125,000 for corporate expenses and inventory.

The chancery division dismissed two counts of Avina's counterclaim and transferred several others to the law division. The case proceeded to trial on Los Amigos' complaint and the remaining counts of Avina's counterclaim. The trial court denied Los Amigos' requested construction of the lease and denied Avina's claims for the imposition of a constructive trust and accounting. Avina appealed the trial court's judgment in that case, and we affirmed. Los Amigos Supermarket, Inc. v. Metropolitan Bank & Trust Co., No. 1-93-0869 (1994) (unpublished order under Supreme Court Rule 23) (hereinafter referred to as Los Amigos I).

In February 1996 the parties proceeded to trial in the law division on Avina's third amended third-party complaint, which was directed solely against Rodriguez and sought recovery on the basis of fraud and negligence. During the jury trial, it was established that Rodriguez began representing Avina in various legal matters in the mid-1970s. He represented Avina when Avina purchased the Property in 1983 from Edward Mazzei, who was operating a grocery store on the premises. After the purchase, Mazzei continued to operate the grocery store, renting the space from Avina for $4,000 per month until July or August 1985. It is undisputed that in July 1985, Rodriguez prepared articles of incorporation for Los Amigos (the Articles), listing Avina as the corporation's sole incorporator. It is further undisputed that, in early August 1985, Rodriguez prepared an assignment (the Assignment) transferring Avina's interest in Los Amigos to Rodriguez's brother-in-law Hector Porras (Porras). The remainder of the facts are in dispute.

According to Avina, Rodriguez suggested to him that they form a corporation and operate a grocery store on the Property themselves. Rodriguez was to manage the store with the help of his brother-in-law, Porras, and Avina was to provide most of the capital. Avina agreed and put Rodriguez in charge of setting up the corporation. Avina testified that he and Rodriguez were to split 50/50 the profits from Los Amigos and Porras was to receive a salary. Avina also testified that he believed that he was the sole owner of Los Amigos.

Avina denied ever telling Rodriguez that he was no longer interested in owning a grocery store and denied signing the Assignment of his interest in Los Amigos to Porras. He testified that he gave Rodriguez $125,000 in cash for the corporation's use in three installments between July 1985 and September 1985. Sometime in 1986, Avina gave Rodriguez an additional $30,000 to pay for a sprinkler system for the Property.

Avina testified that toward the end of 1985 he asked Rodriguez for the records from Los Amigos. Rodriguez informed him that the records would not be complete until the following year. When Avina asked for the records in 1986, Rodriguez gave him copies of several inventories and informed Avina that the corporation's profits were being used to purchase more inventory. In 1987, Avina listed both the Property and Los Amigos for sale. At that time, Avina found out that Rodriguez had listed both the Property and the corporation for sale with another realtor. Avina did not authorize Rodriguez to do so. Avina then obtained the services of another lawyer and subsequently learned that his interest in Los Amigos had been assigned to Porras.

Rodriguez testified that it was Avina's idea to form a corporation to run a grocery store on the Property. Rodriguez neither suggested that the corporation be formed nor asked to participate in it, but he did tell Avina that Porras might be interested in joining the operation. After Rodriguez prepared and filed the Articles at Avina's direction, Avina told Rodriguez that he no longer wanted to operate a grocery store. Avina told Rodriguez to prepare an Assignment, assigning all of Avina's rights in the Articles to Porras. Rodriguez prepared the Assignment, presented it to Avina for signature, and when Avina returned it, Rodriguez gave it to Porras.

In early August 1985 Rodriguez opened a checking account for Los Amigos. He was a signatory on the account, as was Porras. Rodriguez testified that Avina gave him money on several occasions and that at least some of that money was deposited in the Los Amigos account. Rodriguez testified that all of the money given to him by Avina was for repairs to the Property, which Avina had asked Rodriguez to oversee. Rodriguez testified that the total amount of money given to him by Avina for repairs was $90,000 to $97,000, rather than $125,000 as Avina had testified. Rodriguez testified that he had prepared a list summarizing the repairs made to the property using Avina's money. According to Rodriguez, the repairs totaled $92,853.56. Rodriguez acknowledged that from the money Avina gave him, Los Amigos paid $15,000 as a membership fee to Certified Grocers. According to Rodriguez, he told Avina that he had used some of the money for that purpose and Avina told him to "help [the Porrases] out so that they could get started as soon as possible." Avina denied this.

Rodriguez testified that sometime around August 28, 1985, he attended the first shareholders meeting of Los Amigos, at which he and the Porrases appointed themselves directors of Los Amigos. Avina was not present at the meeting. Rodriguez and the Porrases elected Porras as president and treasurer; Samuel Porras as vice-president; and Maria Rodriguez, who was Rodriguez's wife and the Porrases' sister, as secretary. The stock certificates were issued and distributed equally between the Porrases. Rodriguez testified that he has never owned stock in Los Amigos and has never received money from the corporation other than payment for legal services rendered. Rodriguez did acknowledge that he was listed as president of Los Amigos on the corporation's 1986 annual report filed with the Secretary of State and as president and 100% shareholder of Los Amigos on its membership application for Certified Grocers. He signed the latter document only to help Porras get a line of credit.

Both parties also testified regarding the lease under which Los Amigos leased the Property. Two leases were admitted into evidence. The two leases, both dated August 1, 1985, were identical in all terms except rent. Each lease was for a five-year term with an option to renew for another five-year term. Each lease provided that Los Amigos would receive one year of free rent in exchange for making unspecified repairs to the premises. However, the schedule of rents for the remaining years differed under the two leases.

Rodriguez testified that he prepared the first lease, at Avina's request, before Avina had assigned his interest in the Articles to Porras. Avina told Rodriguez the amount of rent to be charged. Under the terms of that lease (the $2,300 lease), the second through fifth years of rent ranged from $2,300 to $3,500. Rodriguez testified that when the lease was signed Avina had already assigned his interest in the Articles to Porras. Porras signed the lease on behalf of Los Amigos and Avina signed as beneficial owner of the Property.

Rodriguez testified that Avina later told him to prepare a second lease with a lower rent so that Avina could use the lease to apply for a reduction in real estate taxes. Under the terms of the second lease (the $2,000 lease), the second through fifth years of rent ranged from $2,000 to $2,800. Porras and Avina both signed this lease.

Avina, on the other hand, testified that to his knowledge Rodriguez had prepared only one lease. He was shown and denied signing the $2,300 lease, but acknowledged signing the $2,000 lease. Avina testified that Rodriguez had suggested the lower rental rate, saying that it would lower the real estate taxes and increase Los Amigos' profits. Several months after he signed the lease, Avina received a copy signed by Porras on behalf of Los Amigos. When Avina questioned this, Rodriguez told him that Porras had signed on behalf of Los Amigos because he was the store's manager. About five months after signing the lease, Avina filed a real estate tax appeal seeking a tax reduction for the Property. The real estate taxes were cut almost in half.

Rodriguez testified that when preparing the two leases he was representing only Avina and not Los Amigos. He further testified that he informed Avina of the potential conflict of interest. Avina denied this.

The evidence deposition of Avina's handwriting expert, James Hayes, was presented during the trial. In Hayes' opinion, Avina did not sign either the Assignment or the $2,300 lease. However, in Hayes' opinion, ...

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