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Kugler v. Southmark Realty Partners III

December 14, 1999

GEORGE AND JOY KUGLER, ALBERT AND JANET FLEUCHAUS, ROGER AND MARY KAMPSCHROER, SANG KI AND HELEN LEE, ERNEST AND HARRIET LOBERG, EDWARD AND VIRGINIA MANN, JAMES AND CHARLOTTE NALLEN, JERRY AND BARBARA NEUMANN, RICHARD AND THERESA BARTOSZEWSKI, FRANK LEIFEL, EDWARD AND ROSE WESKERNA, AND ELIZABETH PAINTIN, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, AND MARTHAS HESS, ET AL.,
PLAINTIFFS-APPELLEES,
V.
SOUTHMARK REALTY PARTNERS III, A CALIFORNIA LIMITED PARTNERSHIP, N/K/A MCNEIL REAL ESTATE FUND XXIII, MCNEIL PARTNERS, L.P., A DELAWARE PARTNERSHIP, AND SOUTHMARK INVESTMENT PARTNERSHIP 85, A NEVADA CORPORATION, DEFENDANTS-APPELLANTS (I.R.E. REAL ESTATE INCOME FUND, A FLORIDA LIMITED PARTNERSHIP AND BFC FINANCIAL CORPORATION, A FLORIDA CORPORATION, AS ITS SUCCESSOR IN INTEREST, I.R.E. REAL ESTATE INCOME ADVISORS CORPORATION, ALAN B. LEVAN, SUSAN C. PERISTEIN, AND FRANK V. GRIECO;
I.R.E. PENSION INVESTORS II, LTD., A FLORIDA LIMITED PARTNERSHIP, I.R.E. PENSION ADVISORS CORPORATION, ALAN B. LEVAN, SUSAN C. PERISTEIN AND FRANK V. GRIECO;
I.R.E. REAL ESTATE GROWTH FUND, LTD., SERIES 29, A FLORIDA LIMITED PARTNERSHIP, I.R.E. ADVISORS SERIES 29 CORPORATION, AND I.R.E. SERIES 29 ASSOCIATES, LTD.;
.R.E. REAL ESTATE GROWTH FUND, LTD., SERIES 28, A FLORIDA LIMITED PARTNERSHIP, I.R.E.
ADVISORS SERIES 28 CORPORATION, ALAN B. LEVAN, SUSAN C. PERISTEIN, AND FRANK V. GRIECO;
HALLWOOD INCOME REAL ESTATE INVESTORS A, A DELAWARE LIMITED PARTNERSHIP, AS THE SUCCESSOR IN INTEREST TO EQUITEC REAL ESTATE INVESTORS FUND A, AND ITS GENERAL PARTNER HALLWOOD REALTY PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP;
SOUTHMARK EQUITY PARTNERS II, A CALIFORNIA LIMITED PARTNERSHIP, N/K/A MCNEIL REAL ESTATE FUND XXV, EQUITY PARTNERS, A TEXAS PARTNERSHIP, AND MCNEIL PARTNERS, L.P., A DELAWARE PARTNERSHIP;
SOUTHMARK REALTY PARTNERS II, A CALIFORNIA LIMITED PARTNERSHIP, N/K/A MCNEIL REAL ESTATE FUND XXII, SOUTHMARK INVESTMENT GROUP, INC., A NEVADA CORPORATION, AND MCNEIL PARTNERS L.P., A DELAWARE LIMITED PARTNERSHIP,
DEFENDANTS).



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY, Nos. 88-CH-4670; 89-CH-4117 (CONSOLIDATED) THE HONORABLE THOMAS A. HETT, JUDGE PRESIDING.

The opinion of the court was delivered by: Presiding Justice Cousins

A consolidated complaint was filed against several entities, including the limited partnership of Southmark Realty Partners III, Ltd. (SRP III), and SRP III's general partner, Southmark PS, Inc. (SPS), formerly known as Southmark Investment Group 85, Inc. (SIG 85). Therein, class representatives (plaintiffs) sought to rescind their purchases of limited partnership interests in SRP III. Upon plaintiffs' motion, the circuit court entered summary judgment in plaintiffs' favor on the issue of liability. Thereafter, plaintiffs filed a motion seeking to set the amount of judgment against SPS *fn1 on the claim for which they had been granted summary judgment. The circuit court granted plaintiffs' motion, entering an order against SPS in the amount of $902,759.48. The judgment was later modified to $902,745.98 upon SPS's motion for reconsideration. SPS appeals, contending the circuit court erred: (1) in entering judgment in plaintiffs' favor where the evidence submitted by plaintiffs as to damages was inadmissible and insufficient; and (2) in refusing to deduct accrued interest from the judgment where two members of the class sold their interests in SRP III prior to the entry of judgment.

For the reasons that follow, we affirm.

BACKGROUND

On May 20, 1988, class representatives, on behalf of hundreds of individuals who purchased an interest in several limited partnerships during the years of 1985 and 1986, filed a class action suit for securities rescission in the circuit court of Cook County against 16 defendants who used the services of unregistered brokers in violation of the Illinois Securities Law of 1953 (the Securities Law) (Ill. Rev. Stat. 1985, ch. 121½, par. 137.1 et seq.). The circuit court dismissed the action due to lack of standing on three separate occasions. However, on appeal of the circuit court's denial of class action treatment, this court found that a class representative may give notice of an election to rescind on behalf of the members of the class under the Securities Law. See Hess v. I.R.E. Real Estate Income Fund, Ltd., 255 Ill. App. 3d 790, 804-05, 629 N.E.2d 520, 530 (1993).

On September 11, 1995, a consolidated class action amendment to complaints for rescission pursuant to the Securities Law was filed, as directed by this court in Hess, reasserting the class allegations from the original complaint through new class representatives. The consolidated complaint was brought against several entities *fn2 ; however, the instant appeal concerns purchasers of interest in only one of the limited partnerships delineated therein, SRP III, as well as its general partner, SPS (formerly known as SIG 85).

Following the filing of its amendment to complaints for rescission, the class moved for summary judgment against SPS on both liability and damages. On April 25, 1996, the lower court granted summary judgment as to liability in favor of the class. The court, however, denied plaintiffs' motion on the issue of damages.

On January 20, 1998, plaintiffs filed a motion seeking to have judgment entered on the rescission claim for which they had been granted summary judgment in 1996, relying solely on the affidavit of one of the class counsel's paralegals, Jeanne Krejci. Based on Krejci's calculations from computer records and distribution data supplied to the class by defendants through their prior counsel, Arnstein & Lehr, plaintiffs contended that SPS' liability under section 13 of the Securities Law totaled $891,672.25, with interest thereon at $114.30 per diem. See 815 ILCS 5/13 (West 1996).

On April 22, 1998, SPS filed its response to plaintiffs' motion to enter judgment against it, contending, inter alia, that plaintiffs' motion should be denied "because the motion does not establish that the amount sought by the Class is the proper amount of judgment." In addition, on April 24, 1998, SPS filed an amended motion to strike the Krejci affidavit, arguing therein that plaintiffs failed to establish the authenticity, admissibility or completeness of the data used to calculate SPS's liability. SPS further asserted that the letter relied upon by Krejci in making her calculations was neither produced by SPS pursuant to discovery, written by Arnstein & Lehr in its capacity as SPS' counsel, nor represented an admission against SPS' interest.

On May 11, 1998, following a hearing on the matter, the circuit court entered a judgment order against SPS in the amount of $902,759.48, as to the liability for plaintiffs' claims for rescission, pursuant to section 13 of the Securities Law (815 ILCS 5/13 (West 1996)).

On June 10, 1998, SPS filed its motion to reconsider and modify or vacate the judgment order, arguing, inter alia, that the calculation of damages was inaccurate in that "newly discovered evidence" established that two class members redeemed their investments in SRP III on December 31, 1995. These distributions, which totaled $12.50, as well as interest thereon in the amount of $2,952.05, had not been deducted from the total amount of the judgment entered.

On July 20, 1998, plaintiffs filed their response to SPS' motion to reconsider, contending, inter alia, that the issue regarding the calculation of interest had been previously decided on November 12, 1996, by Judge Margaret S. McBride, a judge whom SPS and other named defendants in the consolidated class action suit were previously before. There, the I.R.E. defendants argued the same proposition for the deduction of accrued interest as was argued by SPS; however, Judge McBride ruled that the interest, as calculated by the class, followed the plain reading of the statute. See 815 ILCS 5/13 (West 1996).

On June 18, 1998, during the hearing on SPS' motion to reconsider, SPS asserted that, although the present action was consolidated, Judge McBride's ruling regarding the calculation of interest concerned judgments in a separate lawsuit to which SPS was not a party. Moreover, SPS posited that, while section 13(A)(1) of the Securities Law (815 ILCS 5/13(A)(1) (West 1996)) deals with the calculation of interest where a purchaser still is in ownership of the securities, section 13(A)(2) (815 ILCS 5/13(A)(2) (West 1996)) does not specifically deal with the calculation of interest where, as here, the securities are disposed of through either sale or redemption.

On July 13, 1998, the circuit court entered an order finding that plaintiffs' calculation of interest followed the plain reading of the language of the Securities Law (815 ILCS 5/13 (West 1996)), and adopting the decision of Judge McBride in regard to the I.R.E. defendants. Nonetheless, since plaintiffs conceded that SPS did not receive a $12.50 credit from the two class members who redeemed their investments in SRP III prior to the entry of judgment, the court modified its order to $902,745.98 to reflect the ...


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