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IVANHOE FINANCIAL, INC. v. HIGHLAND BANC CORP

September 14, 2004.

IVANHOE FINANCIAL, INC., a Delaware corporation, Plaintiff,
v.
HIGHLAND BANC CORP, an Illinois corporation and WIESLAW DOMARADZKI, Defendants.



The opinion of the court was delivered by: PAUL PLUNKETT, Senior District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff has sued defendants under various theories for their alleged submission to plaintiff of fraudulent mortgage loan packages. The case is before the Court on plaintiff's combined motion to strike defendants' affirmative defenses and dismiss their counterclaim. For the reasons set forth below, the motion is granted in part and denied in part.

Discussion*fn1

  Motion to Dismiss Counterclaim

  On a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded factual allegations of the complaint, drawing all reasonable inferences in plaintiff's favor. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th Cir. 2000). No claim will be dismissed unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

  In Count I of their counterclaim, defendants allege that plaintiff breached a duty it owed to them "to verify and investigate" the loan information they provided to it. (Countercl., Count I ¶¶ 23-24.) Plaintiff says those allegations are squarely contradicted by the parties' contract, and thus, this claim must be dismissed.

  The Court agrees with plaintiff. The broker/lender agreement executed by the parties expressly vests defendants with responsibility for verifying and investigating loan information. The agreement states that defendants "shall be responsible for the accurate preparation and execution of a complete property and credit loan application package on each loan request submitted, including . . . [o]riginal appraisal of the subject property." (Defs.' Second Am. Answer, Affirmative Defenses & Countercl., Ex. A, Broker/Lender Agreement ¶ 1e.) It also requires defendants to "obtain[] an appraisal from an Ivanhoe approved appraiser . . . and . . . ensure that such appraisal is acceptable in form and content to Ivanhoe." (Id. ¶ 2.) Further, by signing the agreement defendants "represent[ed] and warrant[ed]" that "[a]ll documents [they] submitted . . . in connection with each loan package . . . including, but not limited to, the credit report and appraisal, . . . [were] complete, true and accurate." (Id. ¶ 5d.) Finally, defendants warranted that "[n]o fraudulent or intentionally misleading information ha[d] been provided to Ivanhoe with respect to [any] loan application. . . . including, but not limited to, the credit report and appraisal." (Id. ¶ 5f.) In short, the contract clearly creates a duty to verify appraisals, but it vests that duty in defendants, not plaintiff.

  Defendants argue, however, that the duty shifted to Ivanhoe when it: (1) told defendants that its underwriters would "would verify all information [they] provided"; and (2) required them to use an Ivanhoe-approved appraiser. (Defs.' Second Am. Answer, Affirmative Defenses & Countercl. ¶¶ 10-15, 18.) In other words, defendants say Ivanhoe voluntarily assumed the duty of verification, even if that duty would otherwise have been theirs.

  Under certain circumstances, one person's voluntary action can create a duty to another. The voluntary undertaking doctrine, as it is called, "imposes liability upon one who gratuitously undertakes to render services to another and fails to perform those services with due care." Weisblatt v. Chicago Bar Ass'n, 684 N.E.2d 984, 987 (Ill.App. Ct. 1997). The doctrine applies, however, only if the voluntary undertaking caused "physical injury or damage." Id. Defendants allege that plaintiff's breach of its duty to verify caused economic damage, not physical harm. Thus, the voluntary undertaking doctrine does not apply. Id.; see Martin v. State Farm Mut. Auto. Ins. Co., 308 N.E.2d 47, 54 (Ill.App. Ct. 2004) (holding that voluntary undertaking doctrine was inapplicable when there was no allegation of "bodily injury or property damage").

  Moreover, even if the voluntary undertaking doctrine did apply, defendants' negligence claim would still be barred by Moorman Mfg. Co. v. National Tank Co., 435 N.E.2d 443 (Ill. 1982). In that case, the Illinois Supreme Court held that economic loss, which is all that defendants are claiming, is generally not recoverable in tort. Id. at 450-51. Thus, defendants could not pursue their negligence claim against Ivanhoe, even if it had voluntarily assumed the duty to verify. Plaintiff's motion to dismiss Count I of the counterclaim is, therefore, granted.

  In Count II of their counterclaim, defendants allege that Ivanhoe, through its appraiser-agent, fraudulently misrepresented the value of the Spicak and Ruptash properties. To state a fraudulent misrepresentation claim, plaintiff must allege that: (1) Ivanhoe made a statement of material fact that it knew or believed to be false; (2) Ivanhoe intended to induce defendants to rely on the statement; and (3) defendants acted in reasonable reliance on the truth of the statement and were damaged. Neptuno Treuhand-Und Verwaltungsgesellschaft Mbh v. Arbor, 692 N.E.2d 812, 815 (Ill. App. Ct. 1998).*fn2

  Ivanhoe first attacks the agency allegations. In its view, the alleged facts of this case establish that the appraiser was not its agent. The appraiser's fraud, if that is what it was, was perpetrated not only on defendants but on Ivanhoe as well. Conduct that defrauds the principal, Ivanhoe says, could not possibly be within the scope of the appraiser's employment.

  Even if the appraiser's alleged fraud was within the scope of his employment, however, defendants would still falter on the last element of their claim: reasonable reliance. Any allegation of reasonable reliance is belied by the contract defendants signed, which clearly and repeatedly states that defendants are responsible for ensuring the accuracy of the appraisal information. (See Defs.' Second Am. Answer, Affirmative Defenses & Countercl., Ex. A, Broker/Lender Agreement ¶¶ 1e, 2, 5d, 5f.) In light of those provisions, defendants' alleged blind faith in the ...


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