682 (Ill. 1989).
So-called "promissory fraud" may be actionable only if "the false promise
or representation of future conduct is alleged to be the scheme employed
to accomplish the fraud." Id.
Promissory fraud is a disfavored cause of action in Illinois because it
is "easy to allege and difficult to prove or disprove." Bower v. Jones,
978 F.2d 1004, 1012 (7th Cir. 1992). Thus there is a "deliberately high"
burden on a plaintiff claiming promissory fraud: "In order to survive the
pleading stage, a claimant must be able to point to specific, objective
manifestations of fraudulent intent — a scheme or device." Id.
(citing Hollymatic Corp. v. Holly Sys., Inc., 620 F. Supp. 1366, 1369
(N.D. Ill. 1985)) (citations omitted) (emphasis added). Similar concerns
explain the heightened fraud pleading requirements of Fed. R. Civ. P. 9
(b). See Vicom, 20 F.3d at 777. Mr. Clark merely alleges that the
defendants knew that Mr. Fox's statements were false when he made them.
Mr. Clark has not pointed to any evidence of the defendants' intent, and
even if he could, he could not show that the false promise to perform was
the "scheme or artifice" used to deprive him of his money; he has already
alleged that the "schemes" alleged to accomplish the fraud in this case
were the "churning" and the transfer of money from Mr. Clark's account to
Mr. Weisberg's control. The defendant's motion to dismiss is granted as
to Count III.
The defendants argue that Mr. Clark has failed to state a claim for
breach of contract against Mr. Fox because he was acting as a disclosed
agent for Baird, so he cannot be personally liable for acts committed on
behalf of Baird. See Dunlop v. McAtee, 333 N.E.2d 76, 79 (Ill. App. Ct.
1975). of course, an agent acting outside the scope of his authority may
be personally liable on contracts that he makes. Clark v. Maddux,
454 N.E.2d 1179, 1181 (Ill. App. Ct. 1983). Mr. Clark alleged that "Mr.
Fox was acting within and/or outside the scope of his employment with
Baird." Pleading in the alternative is permitted under Fed. R. Evid. 8
(a); even if Mr. Clark cannot ultimately recover on both theories, I will
not require him to choose between them at this stage. He has not plead
any facts that are inconsistent with either claim, so he has stated a
claim against Mr. Fox for breach of contract.
The defendants also argue that Mr. Clark has failed to state a claim
for breach of fiduciary duty against Mr. Fox because there is no
fiduciary duty between a broker and his customer. However, there are
issues of fact as to Mr. Clark's knowledge of and consent to the
transaction that affect the determination of whether the defendants owed
him any fiduciary duty. See In re Oberweis Secs., Inc., No. 98 B 11283,
1992 WL 119272, at *10 (Bankr. N.D. Ill. May 21, 1992) (holding that
broker who assumes control over non-discretionary account may be held to
same fiduciary duty as broker of discretionary account).
Mr. Clark's knowledge of and consent to the transactions and
disbursements from his account are also determinative of the defendants'
arguments that all of Mr. Clark's claims, which arose between 1991 and
1994, are barred by the statutes of limitations. For the state law
claims, I apply the Illinois statute of limitations. See Ogden Martin
Sys. of Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523, 528 (7th Cir.
1999). In Illinois, fraud and breach of fiduciary duty are subject to a
five-year statute of limitations, measured
from the accrual of the cause
of action. 735 ILCS 5/13-205. For most torts, the cause of action accrues
when the plaintiff suffers injury. Hermitage Corp. v. Contractors
Adjustment Co., 651 N.E.2d 1132, 1135 (Ill. 1995). Illinois applies a
"discovery rule" to mitigate the harsh application of the statute of
limitations and tolls the statute of limitations until the plaintiff knew
or reasonably should have known that he has been injured and that his
injury was wrongfully caused. Id. However, the discovery rule will not
operate to toll the statute of limitations where a plaintiff has enough
information about his injury to apprise a reasonable person of the need
for further inquiry to determine whether a legal wrong has been
committed. Young v. McKiegue, 708 N.E.2d 493, 501 (Ill. App. Ct. 1999).
Whether a plaintiff should have known of the need for inquiry is an
objective determination to be made by the trier of fact. Id.
The statute of limitations is ten years for breach of a written
contract, 735 ILCS 5/13-206, and five years for breach of an oral
contract, id. at § 205, measured from the date of the breach.
Hermitage Corp., 651 N.E.2d at 1135. Mr. Clark alleges that his cause of
action is one for breach of written contract, and he refers to the "New
Account Form" attached to his complaint as Exhibit D. The defendants
argue that it is not a contract because it does not contain any of the
duties or obligations allegedly breached.
Illinois courts strictly construe the meaning of "written contract"; a
contract is considered written for the purposes of § 206 "if all
essential terms are reduced to writing and can be ascertained from the
instrument itself." Toth v. Mansell, 566 N.E.2d 730, 733 (Ill. App. Ct.
1990). If parol evidence is necessary to make the contract complete, then
it is treated as an oral contract for the purposes of the statute of
limitations. Id. A claim is not based on a written contract "merely
because it is indirectly connected with the writing or because the
writing may be a link in the chain of evidence establishing liability."
Held v. Held, 137 F.3d 998, 1001 (7th Cir. 1998) (citations omitted)
Here the "New Account Form" on which Mr. Clark purports to base his
claim is a one-page document from Baird with Mr. Clark's name, address,
occupation and estimated income and net worth. It describes the income
objective as "income safety of principal" and indicates that trading is
authorized, but the authorization is limited rather than general. The
alleged contractual duties, viz. informing Mr. Clark that control of
funds had been turned over to a third party and notifying Mr. Clark of
withdrawals from his account, do not appear on the face of the "New
Account Form." Additional or parol evidence would be necessary to make
this form a contract; Mr. Clark admits as much when he alleges that Fox
told him that Baird would make all investment decisions in consultation
with Mr. Clark and that Mr. Clark would have sole control over his own
investments. Although the form may be evidence of some contractual
relationship, it is not a written contract, so the five-year statute of
limitations for oral contracts applies. Because the alleged breaches
occurred prior to August 1994 and the original complaint was not filed
until October 1999, the breach of contract claim is time-barred.
Although the "discovery rule" is not typically applied to straight
breach of contract claims in Illinois, see Sinclair v. Bloom, No. 94 C
4465, 1996 WL 264725, at *4 (N.D. Ill. May 15, 1996) (Coar, J.), Mr.
Clark may avoid the application of the statute of limitations if he can
the defendants fraudulently concealed his cause of action from
him. 735 ILCS 5/13-215. Generally, fraudulent concealment requires that
the defendant took affirmative steps or made representations to conceal
the cause of action. Terrell v. Childers, 920 F. Supp. 854, 860 (N.D.
Ill. 1996). Silence alone does not constitute fraudulent concealment
unless the defendant occupies a fiduciary relationship to the plaintiff.
Hagney v. Lopeman, 590 N.E.2d 466, 468-69 (Ill. 1992). However, "the
allegedly fraudulent statements or omissions that form the basis of the
[§ 215 claim] may not constitute fraudulent concealment in the
absence of showing that they tend to conceal the cause of action."
Barratt v. Goldberg, 694 N.E.2d 604, 608 (Ill. App. Ct. 1998).
The timeliness of Mr. Clark's state law claims turns on the resolution
of the factual question of whether Mr. Clark knew or had reason to know
of the transactions and disbursements from his account. The defendants
attach an affidavit to their motion to dismiss in which the Managing
Director and Director of Client Services of Baird states that Baird sent
monthly account statements and confirmations to Mr. Clark that itemized
transactions and other activity in his account. In his response to the
motion to dismiss, Mr. Clark claims that he never received monthly
account statements.*fn4 On a motion to dismiss, I may not consider
matters outside of the pleadings, such as the defendants' affidavit,
unless I convert the motion to one for summary judgment. Fed. R. Civ. P.
12(b); Travel All Over the World v. The Kingdom of Saudi Arabia,
73 F.3d 1423, 1430 (7th Cir. 1996). If I convert the motion to one for
summary judgment, I must give all of the parties a reasonable opportunity
to present all pertinent material. Id. I find that this procedure is
appropriate in this case. The resolution of the defendants' statute of
limitations claim turns on the narrow factual question of whether Mr.
Clark received monthly account statements. Accordingly, defendants are
given until May 25 to submit any additional material in support of
summary judgment based on the statute of limitations, including a Local
Rule LR56.1 statement. Plaintiffs have until June 15, 2001 to respond.
Any reply is due June 29. Ruling will be July 20, 2001, at 9:30 a.m.
The defendants' motion to dismiss is GRANTED with respect to counts III
and IV. I convert the motion to dismiss to one for summary judgment with
respect to counts I and II. The defendant's motion to strike paragraphs
of Mr. Clark's Amended Complaint is DENIED. Paragraph 49, relating to
Mr. Weisberg's lack of insurance, may not be relevant to this case, but
it is not so scandalous that I find it must be stricken. The defendants
do not identify the numbers of the other paragraphs they wish to strike,
and the references to non-parties are anyhow relevant.