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Thornwood, Inc. v. Jenner & Block

September 22, 2003


Appeal from the Circuit Court of Cook County 01 L 1401 Honorable James F. Henry, Judge Presiding

The opinion of the court was delivered by: Justice McBRIDE


Plaintiffs-appellants (Thornton) appeal from the circuit court's dismissal of their verified complaint (complaint). Thornton's three-count complaint accused defendants-appellees (Jenner & Block) of (i) aiding and abetting a breach of fiduciary duty; (ii) aiding and abetting a scheme to defraud; and (iii) aiding and abetting a scheme of fraudulent inducement. Jenner & Block moved to dismiss the complaint, claiming that Thornton previously released his claims against Jenner & Block. The circuit court agreed and dismissed the complaint. Finding that Thornton has raised a material issue as to whether the release is valid, we reverse and remand.

In February 1991, Thomas A. Thornton and James Follensbee (Follensbee), through James Follensbee & Associates and JF Properties, Ltd., formed the Thornwood Venture Limited Partnership (Partnership) for the purpose of developing Thornton's Kane County farm as a residential community and golf course (Thornwood Golf Course). Thornton contributed 550 acres of land and an option to buy an additional 180 acres of land. Thornton further agreed to fund the Partnership's endeavors until it was able to secure equity investors. Follensbee contributed his expertise and experience as an architect, engineer, and real estate developer to the Partnership. In exchange, Thornton received a 75% ownership interest in the Partnership. Follensbee received a 25% ownership interest and the right to be compensated for his services as the Partnership's managing general partner.

The Partnership consumed significant funds in its efforts to develop the Property. By October 1994, Thornton had expended cash and incurred debt of more than $8 million for the Partnership. Follensbee made numerous efforts to recruit investors for the Partnership. In 1994, for instance, Follensbee approached PGA Tour Golf Course Properties, Inc. (PGA), and Potomac Sports Properties, Inc. (Potomac), regarding the possibility of developing Thornwood Golf Course as a PGA Tournament Players Course (TPC). The benefits of such a partnership could have been substantial, including:

"(A) Golf tournament galleries of up to 75,000 people per day to visit the community during PGA Tour events;

(B) Immediate respect and credibility for the golf course by having the best players in the world compete on the course and publicly discuss its merits and playability;

(C) Unsurpassed recognition and overall community awareness from sports media and national television audiences;

(D) Ranking as a top residential community in annual revenues and total home sales;

(E) Highest average prices paid for any comparable golf area home sites;

(F) Increased real estate sales traffic directly attributable to TPC/PGA Tour events;

(G) Diverse price ranges and products sold; and

(H) Realtor recommendations to prospects seeking golf-oriented residential communities."

Thus, the Partnership was likely to experience tremendous revenue growth if Thornwood Golf Course was a TPC. Unfortunately, in a letter dated June 8, 1994, the PGA indicated that it would not be willing to work with the Partnership "unless the developer [was] willing to start over." Follensbee delivered a copy of the letter to Thornton and told him that "the PGA and [Potomac's] involvement in the development project was not feasible."

Nevertheless, Follensbee continued to pursue partnership negotiations with the PGA and Potomac. Without disclosing his continued negotiations, Follensbee began making plans with the PGA and Potomac regarding the layout of the golf course, the division of profits, and the duties of the Partnership, the PGA, and Potomac. None of these plans involved Thornton; nor were they disclosed to Thornton.

In the midst of Follensbee's undisclosed efforts to recruit the PGA and Potomac as partners, Thornton confronted Follensbee regarding the significant expenditures he had made to fund Follensbee's development activities. Thornton's assets were quickly dissipating into the Partnership without any indication that the Partnership was likely to have any success in the near future; thus, Thornton indicated to Follensbee that he desired to liquidate the Partnership or sell his interest. Follensbee responded that he would sue Thornton before he would allow liquidation of the Partnership. Alternatively, he indicated that he would be interested in purchasing Thornton's interest in the Partnership. At that time, Follensbee did not inform Thornton that his interest was likely to gain significant value in the near future because of the agreement Follensbee was negotiating with the PGA and Potomac. Instead, Follensbee enlisted the services of Jenner & Block to assist him in acquiring Thornton's interest in the Partnership. Jenner & Block also participated in Follensbee's negotiations with the PGA and Potomac.

On January 11, 1995, Follensbee and Thornton executed a settlement agreement (settlement agreement), which provided the requirements and terms for Follensbee to acquire Thornton's interest in the Partnership. Alternatively, the settlement agreement provided for the liquidation of the Partnership. Significantly, the settlement agreement contained mutual releases between the parties. The release agreed to by Thornton (Follensbee Release) provides:

"Except as specifically provided in this Agreement or in any other agreement entered into after the date hereof, Thornton, jointly and severally, and the Partnership, jointly and severally, hereby unconditionally and irrevocably release [Follensbee] and the Partnership (and any Affiliates, directors, officers, employees, and agents of any of them) (collectively, the 'Released Parties') from any and all claims or rights either Thornton (or any of Thornton) or the Partnership may have against any one or more of the Released Parties arising under or in any manner related to the Partnership, the Partnership Agreement, the Contribution Agreement, the Property, breach of fiduciary duties, securities laws, or the solicitation and nondisclosure of discussions, offers, and opportunities regarding Financing Activities, any other document, instrument or agreement (whether oral or written) between any of Thornton or the Partnership and any of the Released Parties, or the operations, activities and business of the Partnership, including but not limited to any and all obligations for the repayment of any loans or advances or the payment of any interest thereon, the payment of any fees, the reimbursement of expenses, or any other such obligations of any kind or nature whatsoever."

Additionally, Thornton contemporaneously executed a release (Jenner & Block Release) purporting to relieve Jenner & ...

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