MEMORANDUM OPINION AND ORDER
THOMAS M. DURKIN, District Judge.
Charles Giger alleges that James Ahmann and Gary Lange fraudulently sold him an investment product known as a "life settlement" in violation of federal and Illinois securities laws and Illinois anti-fraud laws. R. 165. Ahmann and Lange have each moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. R. 173; R. 176. For the following reasons, both of their motions are denied.
Giger was Ahmann's physician. R. 182 ¶ 18. Ahmann was an agent for J.W. Cole Financial, Inc. R. 24 ¶ 23. In March 2006, Ahmann approached Giger about investing in a life settlement product offered by A&O Resource Management in conjunction with Houston TangleWood Partners. R. 190 ¶¶ 19-20, 31; R. 24 ¶¶ 18, 27. "Life settlement" is a term used to describe the sale by an insured person to a third party of the right to pay premiums on and receive the death benefit of a life insurance policy. R. 24 ¶¶ 12-13; R. 25 ¶¶ 12-13. Ahmann told Giger that the life settlements would be secured by Provident Capital Indemnity ("PCI"), a bonding company that would pay the death benefit amount on the underlying life insurance policy in the event that the insured did not die within a certain period of time. R. 24 ¶ 19. An entity called Midwest Medical Review provided the life expectancy calculations. R. 190 ¶ 10.
On April 12, 2006, Ahmann and Lange met with Giger and his wife at Giger's house. Giger alleges that Ahmann told Giger that Lange was his partner and that Lange's involvement in the transaction was necessary because Lange was only one of twelve people in the country that could sell this investment. R. 190 ¶ 35; R. 186 ¶ 26. Giger and Lange signed documents enabling Giger to invest in three separate life insurance policies. R. 182 ¶¶ 26, 33-34. The three policies are identified by the last names of the insured people, namely Server, Frater and Boseker. R. 182 ¶¶ 36, 39-40. Giger authorized the following payments: (1) $600, 000 for the Server policy on April 13, 2006, R. 183-8 at 70-75; (2) $199, 542.17 for the Frater policy on May 3, 2006; and (3) $199, 542.17 for the Boseker policy on May 3, 2006, R. 183-8 at 77-85.
In early 2008, Giger received a letter from the Texas Department of Securities concerning A&O. R. 183-7 at 15-18. This letter motivated Giger to do additional research regarding A&O and the other companies and individuals responsible for managing his life settlement investments. Giger discovered information that caused him great concern about the security of his investments, and on March 19, 2008, Giger had his lawyer send a letter to Ahmann, Lange, and representatives of A&O and Houston Tanglewood demanding rescission of the $2.1 million that Giger had invested with them. R. 183-8 at 6-10. Giger alleges that this demand was refused. R. 165 ¶ 60.
Giger filed this case on July 7, 2009, alleging that Ahmann and Lange misrepresented and omitted material information in selling him the life settlements. Specifically, Giger alleges violations of § 10(b)(5) of the Exchange Act of 1934, Illinois Common Law, the Illinois Securities Laws of 1953, and the Illinois Consumer Fraud and Deceptive Business Practices Act.
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The Court considers the entire evidentiary record and must view all of the evidence and draw all reasonable inferences from that evidence in the light most favorable to the nonmovant. Ball v. Kotter, 723 F.3d 813, 821 (7th Cir. 2013). To defeat summary judgment, a nonmovant must produce more than "a mere scintilla of evidence" and come forward with "specific facts showing that there is a genuine issue for trial." Harris N.A. v. Hershey, 711 F.3d 794, 798 (7th Cir. 2013). Ultimately, summary judgment is warranted only if a reasonable jury could not return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Ahmann argues the following in support of his motion for summary judgment:
(1) Giger's federal securities fraud claim does not comply with the applicable statute of limitations, R. 178 at 7-9;
(2) the life settlements are not securities for the purposes of federal or Illinois securities fraud statutes, R. 178 at 4-7;
(3) Ahmann did not make any misrepresentation or omission as to material facts, R. 178 at 9-11;
(4) Giger disclaimed any reliance on Ahmann's statements in the relevant deal documents, R. 178 at 11-12;
(5) a reasonable jury could not find that Giger relied on Ahmann's statements, R. 178 at 12-13;
(6) the Illinois Consumer Fraud Act does not apply in these circumstances, R. 178 at 17-18; and,
(7) Giger failed to preserve his claim under Illinois Securities Law, R. 178 at 14-17.
Lange seconds most of these arguments, and also argues that summary judgment in his favor should be granted because he had no duty to Giger and the rescission Giger seeks is not possible. See R. 174.
I. Whether Giger's Federal Securities Fraud Claim Complies with the Applicable Statute of Limitations.
Ahmann argues that Giger failed to bring his federal securities fraud claim within the two-year statute of limitations provided by 28 U.S.C. § 1658(b). Ahmann contends that Giger "was on inquiry notice of the alleged fraud at the time of the purchase" at Giger's house on April 12, 2006, because although Ahmann allegedly told him that the rate of return on the life settlements was "guaranteed, " the documents stated the yield was "estimated." R. 178 at 7-8. Giger argues that he was not aware of the fraud until he received a communication from the Texas State Securities Board dated January, 29, 2008. R. 183-7 at 15-18. If Ahmann is correct that the statute of limitations began to run on April 12, 2006, then Giger's filing of his complaint on July 7, 2009 does not comply with the two-year statute of limitations. If Giger is correct, however, that the statute of limitations did not begin to run until he received the Texas State Securities Board letter sometime after January 29, 2008, then his claim is timely.
As an initial matter, the Court notes that in Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 653 (2010), the Supreme Court clarified that "the discovery' of facts that put a plaintiff on inquiry notice' does not automatically begin the running of the limitations period. [Rather, ] the limitations period in § 1658(b)(1) begins to run once the plaintiff did discover or a reasonably diligent plaintiff would have discover[ed] the facts constituting the violation'-whichever comes first."
This legal clarification, however, is not necessary to explain why Ahmann's statute of limitations argument fails, because the discrepancy between Ahmann's alleged oral representations and the written representations in the deal documents was not enough to put Giger on inquiry notice of the fraud he alleges, let alone to constitute actual discovery of that fraud. Ahmann's argument implies that the discrepancy between Ahmann's oral representations about the life settlement product and the representations in the actual deal documents should have demonstrated to Giger that Ahmann and Lange were also lying about the solvency of A&O, PCI, and Midwest Medical, as well as the trustworthiness of the individuals running those companies. The provision in the deal documents Ahmann cites, however, does not create the suspicion he claims. The deal documents say that Giger "will realize an estimated annual compound yield of not less than 12%." R. 177-21 at 4. But Giger does not allege that he was defrauded because the rate of return on his investment was less than 12%. He alleges that he lost his entire investment because A&O, PCI and Midwest Medical were insolvent and managed by untrustworthy individuals. A discrepancy between the rate of return promised orally and in writing is not an obvious sign to a putative investor that the entire deal is bad, especially when Ahmann and Lange are simultaneously touting the attractiveness of the investment.
Moreover, Giger's conduct on the day he signed the deal documents shows that he was not blindly accepting what Ahmann told him. Giger alleges that he noticed that the written representations in the deal documents did not provide that the premiums on the underlying policy would be pre-paid as Ahmann had promised orally. R. 181 at 14. Giger requested additional written assurances that the premiums would be pre-paid, and Ahmann provided a letter from A&O dated May 31, 2006 promising that "A&O purchases the policy paying the premium to the end of the insured's life expectancy." R. 183-7 at 12-13; R. 183-2 at 162:23 - 164:3. With this evidence a reasonable jury could find that a reasonable person would not have discovered the fraud Giger alleges sooner than he did.
II. Whether Life Settlements Are Securities.
Both Ahmann and Lange argue that the bonded life settlements Giger purchased do not meet the definition of "securities" under federal law and Illinois law. R. 178 at 3-6; R. 174 at 14-15.
An "investment contract" is a type of security under both federal and Illinois law. 15 U.S.C. § 77b; 815 ILCS 5/2.1. And under both federal and Illinois law, "the test for determining whether a particular scheme is an investment contract" is "whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.'" S.E.C. v. Edwards, 540 U.S. 389, 393 (2004) (quoting S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301 (1946)); Ronnett v. Am. Breeding Herds, Inc., 464 N.E.2d 1201, 1203 (Ill.App.Ct. 1st Dist. 1984) (adopting Howey ). This is "a flexible rather than a static principle, one that is capable of adaptation to meet the countless and various schemes devised by those who seek the use of the money of others on the promise of profits.'" Edwards, 540 U.S. at 393 (quoting Howey, 328 U.S. at 299). Additionally, the Seventh Circuit has stated that the "[Exchange] Act's definition of security' seeks to confine the protection of the securities laws to investors and exclude from the Act's protection borrowers and lenders in commercial settings." Secon Serv. Sys. v. St. Joseph Bank and Trust Co., 855 F.2d 406, 411 (7th Cir. 1988).
Ahmann argues that Giger cannot show that the life settlements were a "common enterprise." R. 178 at 5. But Ahmann admits that Giger owned only "a portion of the Boseker policy." R. 178 at 5. And there is evidence in the record that Giger owned only 54.3946% of the Server policy and 40.5179% of the Frater policy. See R. 177-24; R. 177-25. This evidence suggests that other investors owned a percentage of the policies in common with Giger. Thus, there is sufficient evidence in the record for a reasonable jury to find that the life settlements are a "common enterprise."
Ahmann also argues that the profits from Giger's life settlements did not "come solely from the efforts of others, " as the Supreme Court's test requires. R. 178 at 6. Rather, Ahmann contends that "the only variable that could affect the profitability of the bonded life settlements was the death of the insured or the maturity of the bond.... [T]he PCI financial guaranty bond eliminated the maturity' or longevity' risk associated with A&O's purported ability to accurately measure an insured's life expectancy." R. 178 at 6. Thus, Ahmann argues this case is unlike S.E.C. v. Mutual Benefits Corp., 408 F.3d 737 (11th Cir. 2005), in which the Eleventh Circuit held that an unbonded life settlement investment is a security. Similarly, Lange argues that because Giger's "A&O investment paid out only when the insured died, " and "A&O could do ...