Appeal from the Circuit Court of Cook County. 09 CH 42951 The Honorable LeRoy K. Martin, Judge Presiding.
The opinion of the court was delivered by: Justice Pucinski
JUSTICE PUCINSKI delivered the judgment of the court, with opinion. Presiding Justice Lavin and Justice Fitzgerald Smith concurred in the judgment and opinion.
¶1 Plaintiffs opened individual retirement accounts (IRAs) with the defendant custodian bank, Soy Capital Bank and Trust Company, a/k/a Soy Capital Wealth Management (Soy), and brought an action against Soy for losses as the result of an alleged "Ponzi" scheme by the owner of the fund in which they invested their IRAs. The circuit court dismissed the plaintiffs' first amended complaint for failure to state a cause of action for breach of fiduciary duty, breach of the Illinois Trusts and Trustees Act (760 ILCS 5/1 et seq. (West 2008)), professional negligence, breach of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2008)), breach of contract, civil conspiracy, breach of duty under a bailment, and wilful and wanton misconduct. We hold the circuit court did not err in dismissing all claims against Soy because the IRA agreement signed by plaintiffs, which encompassed disclosures and additional agreements and was incorporated in their first amended complaint, specifically provided that the defendant custodian bank had no duty to investigate the actual value of the funds and plaintiffs agreed to release and hold the bank harmless from any losses as a result of their direction of investment in the IRAs.
¶3 The instant appeal is from the circuit court's dismissal pursuant to section 2-615 of the Illinois Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)) of plaintiffs' complaint against Soy based on its alleged fiduciary duty to accurately report the value of plaintiffs' individual retirement accounts with Hubadex, Inc. (Hubadex). Soy is an Illinois bank and trust company which maintains offices at 455 North Main Street in Decatur, Illinois, and conducts business in Cook County, Illinois. Plaintiffs are all Illinois residents who opened individual retirement accounts with Soy. Since the late 1990s William A. Huber and Hubadex sold limited partnership interests in the Quarter Funds and the Symmetry Fund and participation agreements in the Trimester Funds, each of which was held out as a pooled investment vehicle. William A. Huber directed all potential investors in Hubadex to contact Soy as the only bank they could use to invest with Hubadex. The 13 plaintiffs in this case collectively invested over $2.5 million in the Hubadex fund through the Soy IRA accounts.
¶4 On September 29, 2009, the United States Securities and Exchange Commission (SEC) filed a complaint against William A. Huber and Hubadex in the United States District Court for the Northern District of Illinois, Eastern Division. The SEC complaint alleged that Huber and Hubadex had defrauded Hubadex's investors of at least $16 million since 2006 as part of a "Ponzi" scheme.
¶5 Prior to September 29, 2009, each plaintiff executed an IRA application with Soy, which included an investment direction form, "Individual Retirement Account Provisions, Disclosures, and Consents," and a financial disclosure. These documents were attached to plaintiff's first amended complaint and filed under seal in the proceedings below. The application to open the IRA provided in a paragraph right above the signature line the following:
"I certify that the information provided by me on this Application is accurate, and that I have received a copy of IRS Form 5305-A, Individual Retirement Custodial Account, a Disclosure Statement, and a Financial Disclosure. I agree to be bound by the terms and conditions found in the Agreement, Disclosure Statement, Financial Disclosure, and amendments thereto. I assume sole responsibility for all consequences relating to my actions concerning this IRA. I understand that I may revoke this IRA on or before seven (7) days after the date of establishment. I have not received any tax or legal advice from the custodian, and I will seek the advice of my own tax or legal professional to ensure my compliance with related laws. I release and agree to hold the IRA custodian harmless against any and all claims or losses arising from my actions." (Emphases in original and added.)
The IRA application was signed by each plaintiff and one of Soy's agents, with Soy in its capacity as custodian of the account.
¶6 Each plaintiff also executed an investment direction form provided by Soy, which directed that plaintiff specify what percentage of money in the new IRA would be invested in each of the three funds offered by Hubadex. Soy charged plaintiffs fees for acting as custodian and trustee of their IRAs, which included a minimum annual fee as well as an annual fee based on market value.
¶7 The "Individual Retirement Account Additional Provisions, Disclosures, and Consents" merely provided for the disclosure of the IRA owner's name and other information obtained pursuant to a rule of the SEC only upon written direction, and further explained that the fees for recordkeeping and administrative services for money market and mutual funds.
¶8 The financial disclosure contained the following provision regarding the projection method which was selected for the value of the IRA:
"Projection Method Four: The Value of Your IRA Cannot be Reasonably Projected.
The value of your IRA is solely dependent on the performance of your IRA's investments such as mutual funds, stocks, bonds, and other securities and cannot be reasonably projected. However, we are required to provide the following information as part of this financial disclosure:
1. Earnings. The method for computing and allocating the earnings on your IRA investments may be found in the prospectus or similar materials applicable to your IRA investments. The method may vary depending on the provider and type of the investments."
¶9 The relevant portion of section 8.10 of the financial disclosure expressly provides the following:
"Representations and Indemnity. You represent that any information you and/or your agents provide to us is accurate and complete, and that your actions comply with this Agreement and applicable laws governing retirement plans. You understand that we will rely on the information provided by you, and that we have no duty to inquire about or investigate such information. We are not responsible for any losses or expenses that may result from your information, direction, or actions, including your failure to act. You agree to hold us harmless, to indemnify, and to defend us against any and all actions or claims arising from, and liabilities and losses incurred by reason of your information, direction, or actions. Additionally, you represent that it is your responsibility to seek the guidance of a tax or legal professional for your IRA issues.
We are not responsible for determining whether any contributions or distributions comply with this Agreement and/or the federal laws governing retirement plans. We are not responsible for any taxes, judgments, penalties or expenses incurred in connection with your IRA, or any losses that are a result of events beyond our control." (Emphases added.)
¶10 Section 8.11 of the financial disclosure further provided: "8.11. Investment of IRA Assets.
(a) Investment of Contributions. We will invest IRA contributions and reinvest your IRA assets as directed by you based on our then-current investment policies and procedures. If you fail to provide us with investment direction for a contribution, we will return or hold all or part of such contribution based on our policies and procedures. We will not be responsible for any loss of IRA income associated with your failure to provide appropriate investment direction.
(b) Directing Investments. All investment directions must be in a format or manner acceptable to us. You may invest in any IRA investments that you are qualified to purchase, and that we are authorized to offer and do offer at the time of the investment selection, and that are acceptable under the applicable laws governing retirement plans. Your IRA investments will be registered in our name or our nominee's name for the benefit of your IRA. Specific investment information may be provided at the time of the investment.
Based on our policies, we may allow you to delegate the investment responsibility of your IRA to an agent by providing us with written notice of delegation in a format acceptable to us. We will not review or guide your agent's decisions, and you are responsible for the agent's actions or failure to act. We are not responsible for directing your investments, or providing investment advice, including guidance on the suitability or potential market value of various investments. For investments in securities, we will exercise voting rights and other similar rights only at your direction, and according to our then-current policies and procedures." (Emphases added.)
¶11 Section 8.09 of the financial disclosure provided:
"Interpretation. If any question arises as to the meaning of any provision of this Agreement, then we shall be authorized to interpret any such provision, and our interpretation will be binding upon all parties."
¶12 Prior to February 2005, the Illinois Securities Department performed a securities audit of Hubadex and its officers, directors, employees, agents, affiliates, successors and assigns. As a result of that audit, on or about February 10, 2005, Hubadex executed a stipulation to entry of a consent order entered on February 22, 2005, finding that Hubadex had violated the Illinois Securities Law of 1953 (815 ILCS 5/1 ...