Appeal from the Circuit Court of Cook County 2010 L 002913 Honorable Raymond W. Mitchell, Judge Presiding.
The opinion of the court was delivered by: Justice Connors
JUSTICE CONNORS delivered the judgment of the court, with opinion. Presiding Justice Quinn and Justice Harris concurred in the judgment and opinion.
¶ 1 This appeal presents the following certified question:
"Where a purchaser of securities contractually agrees through a non-reliance clause that it is not relying on any oral representation made in connection with its purchase of the securities, is the purchaser barred as a matter of law from thereafter pleading in an action alleging common law fraud that it relied on oral statements when purchasing the securities?"
¶ 2 The facts of this case are straightforward. In 1999, plaintiffs bought shares of stock in Pixelon, Inc., from defendants. Prior to the purchase, plaintiffs received a document called a private placement memorandum (PPM) from defendants, which provided details about the company and the proposed investment. Plaintiffs then signed a contract known as a subscription agreement in order to consummate the stock purchase. The subscription agreement contained the following clause, which is known as a "nonreliance" clause:
"In evaluating the suitability of an investment in [Pixelon], the undersigned [i.e., plaintiffs], having been delivered a copy of the [PPM], acknowledges that he has relied solely upon the [PPM], documents and materials submitted therewith, and independent investigations made by the undersigned in making the decision to purchase the Shares subscribed for herein, and acknowledges that no representations or agreements (oral or written), other than those set forth in the [PPM], have been made to the undersigned with respect thereto."
¶ 3 According to plaintiffs, not long after they signed the subscription agreement they allegedly discovered that certain material statements that defendants had made orally and in writing about Pixelon were untrue. Plaintiffs eventually filed suit, first in federal court and then, after that lawsuit was dismissed for reasons not relevant here, in the circuit court of Cook County. In the circuit court, plaintiffs advanced several causes of action, but the only one that is relevant to the certified question is common-law fraud based on defendant's alleged oral misrepresentations. Defendants moved to dismiss under section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619 (West 2010)).
¶ 4 This being an appeal pursuant to Illinois Supreme Court Rule 308 (eff. Feb. 26, 2010), we strictly limit our review to the certified question, which we consider de novo as a matter of law. See Barbara's Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 58 (2007). We accordingly take no position on the merits of the underlying case. The narrow question at issue is the legal effect of this kind of nonreliance clause on a common-law fraudulent oral misrepresentation claim. Defendants argue that Illinois case law establishes a rule that categorically bars a common-law fraudulent oral misrepresentation claim involving securities whenever there is a nonreliance clause such as the one in this case. Plaintiffs, on the other hand, argue that such a fraud claim is only barred when the alleged oral misrepresentation contradicts another representation in the written instrument that contains the nonreliance clause.*fn1
¶ 5 At bottom, the certified question is about the meaning of one element of the common-law tort of fraudulent misrepresentation. The elements of the tort are (1) a false statement of material fact, (2) known or believed to be false by the person making it, (3) an intent to induce the plaintiff to act, (4) action by the plaintiff in justifiable reliance on the truth of the statement, and (5) damages caused by such reliance. See, e.g., Doe v. Dilling, 228 Ill. 2d 324, 342-43 (2008). At issue is the fourth element, and the legal question is this: can plaintiffs claim to have justifiably relied on an oral representation while simultaneously disclaiming such reliance in the nonreliance clause of the written subscription agreement?
¶ 6 We have previously considered this issue in three cases. In Adler v. William Blair & Co., 271 Ill. App. 3d 117 (1995), the plaintiffs received a PPM that detailed the risk of the proposed investment and then signed a subscription agreement that contained a warranty to the effect that the plaintiffs "had read the PPM and made the decision to invest relying solely on the information contained in the PPM and not in reliance on any other information." (Emphasis added.) Id. at 126. When the investment soured, the plaintiffs sued and alleged, among other things, fraudulent oral misrepresentation. See id. We held as a matter of law that the plaintiffs could not have justifiably relied on any of the alleged oral misrepresentations because of the nonreliance clause in the subscription agreement. See id. at 126-27. Although the plaintiffs claimed that clauses in the PPM and the subscription agreement that encouraged plaintiffs to "ask questions" about and "verify the accuracy" of the PPM justified their reliance on outside representations, we rejected this argument, noting that "[t]o accept the plaintiffs' contention is to hold the written agreement for naught." Id. at 127.
¶ 7 We next discussed the Adler rule, as we will refer to this principle for ease of reference, in Tirapelli v. Advanced Equities, Inc., 351 Ill. App. 3d 450 (2004). In that case, the plaintiffs bought shares in a company from the defendants via a subscription document that contained a nonreliance clause, which read: "In evaluating the suitability of an investment by the undersigned Company, the undersigned has relied solely upon the materials made available to the undersigned at the undersigned's request and independent investigations made by the undersigned in making the decision to purchase the Preferred Membership Interests subscribed for herein, and acknowledges that no representations or warranties (oral or written), have been made to the undersigned with respect thereto." (Internal quotation marks omitted.) Id. at 453. The subscription documents also contained an integration clause. See id. When plaintiffs allegedly learned that some representations were false, they attempted to rescind the transaction and, failing that, filed a lawsuit alleging, among other things, common-law fraudulent oral misrepresentation. See id. at 453-54. In our opinion, we discussed both Adler and the federal case Rissman v. Rissman, 213 F. 3d 381 (7th Cir. 2000), ultimately reaffirming Adler and holding that "[p]laintiffs' reliance was unreasonable as a matter of law" because the nonreliance clause disclaimed any reliance on the defendants' representations. ...