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Kim v. Song

Court of Appeals of Illinois, First District, First Division

August 8, 2016

JAMES JH SONG and WAN HWI LEE, Defendants-Appellees.

         Appeal from the Circuit Court of Cook County, No. 13-L-009444; the Review Hon. Margaret Ann Brennan, Judge, presiding.


          Soon Mo Ahn, of Glenview, for appellants.

          Collins Bargione & Vuckovich, of Chicago (George B. Collins and Kathryne R. Hayes, of counsel), for appellees.

          Panel JUSTICE HARRIS delivered the judgment of the court, with opinion. Justices Cunningham and Connors concurred in the judgment and opinion.



         ¶ 1 Plaintiffs brought suit against defendants seeking to recover damages and to rescind certain stock purchase transactions, alleging that defendants made false oral representations about the stock and the corporation. The circuit court granted defendants' motion to dismiss the complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 2012)) and allowed plaintiffs to amend their complaint. Plaintiffs subsequently filed a first amended verified complaint alleging, inter alia, that defendants committed common-law fraud (count I), violations of the Illinois Securities Law of 1953 (815 ILCS 5/1 et seq. (West 2012)) (count III), and violations of Regulation D (see 17 C.F.R § 230.500 et seq. (2012)) (count IV). Defendants filed a section 2-615 motion to dismiss all of the counts in the amended complaint, which the court granted. Plaintiffs were given leave again to amend the complaint but declined to do so. Only the claims set forth under counts I, III, and IV of the first amended verified complaint are at issue in this appeal.

         ¶ 2 On April 25, 2016, this court filed an opinion affirming the trial court's judgment in part but reversing the dismissal of count I of plaintiffs' complaint alleging common-law fraud. Defendants filed a petition for rehearing, arguing that plaintiffs' claim for common-law fraud cannot stand in light of the nonreliance clause in the agreement. This court granted the petition and requested supplemental briefing by the parties. In their supplemental answer, plaintiffs for the first time alleged that defendants were not in an employment or agency relationship with American Metro Bancorp, Inc. (AMB).[1] A party cannot raise new issues in a petition for rehearing. People v. McNeal, 405 Ill.App.3d 647, 682 (2010) (citing Ill. S.Ct. R. 341(h)(7) (eff. July 1, 2008)). Therefore, we do not consider plaintiffs' new argument or any material not contained in the record below upon rehearing. For the following reasons, we now affirm the trial court's dismissal of counts I, III, and IV.

         ¶ 3 BACKGROUND

         ¶ 4 A. The Original Complaint

         ¶ 5 On August 22, 2013, the two original plaintiffs in this action, Yoon Ja Kim (Yoon) and Kwang Lim Rah (Rah), filed a verified seven-count complaint against defendants, James Jh Song (Song) and Wan Hwi Lee (Lee). The various common-law and statutory claims asserted in the complaint purported to stem from a stock offering and plaintiffs' purchases of shares in the stock. Plaintiffs alleged that defendants solicited them to purchase shares of stock in AMB, an Illinois corporation doing business as American Metro Bank in Chicago, for the purpose of acquiring a controlling interest in AMB to set up a new Korean bank. Plaintiffs further averred that they tendered separate payments to defendants for shares of the AMB stock and their proportionate share of attorney fees that defendants claimed would be necessary to the Korean bank project. According to the allegations in the complaint, defendants made oral representations to plaintiffs that defendants knew to be false and omitted or concealed information that should have been disclosed to plaintiffs. In response, defendants filed a section 2-615 motion to dismiss the complaint. The circuit court granted this motion but allowed Yoon and Rah to replead the complaint and to include additional plaintiffs.

         ¶ 6 B. First Amended Verified Complaint

         ¶ 7 On March 27, 2014, Yoon and Rah filed a first amended verified complaint and added the following as plaintiffs in the suit: John Kim (Kim), Kevin Cho (Cho), Young Park (Park), and Hyon Ai Kim (Hyon). According to the first amended verified complaint, [2] defendants "Song and Lee are widely known in the Korean community as successful businessmen and owners of the City Sport stores" throughout the Chicago area. Around January 2010, defendants began soliciting Korean investors, including plaintiffs, to purchase shares of AMB stock.[3] Most of the plaintiffs were initially contacted by defendants, who explained that if the investors purchased enough shares to acquire a controlling majority interest in AMB, they could create a Korean bank. Many of the plaintiffs were already acquainted with one or both of the defendants prior to this initial contact, either as members of the same runners club or through other acquaintances in their local Korean communities.

         ¶ 8 1. Defendants' Representations to Plaintiffs

         ¶ 9 According to the general allegations and "Statements] of Fact" specific to each of the plaintiffs, Lee and/or Song made the following representations to them during either an initial phone conversation or in-person meeting: the subscribers would be "investing in a Chinese bank, AMB" by acquiring a majority interest in AMB stock, so as to "overtake the operation of [the bank] and thereby open a Korean bank"; this new bank would be "like Foster Bank" (which, purportedly, was "the only other Korean-operated bank in Illinois with branches throughout the Chicago and Chicago suburban areas"); and the project involved "purchasing a building which used to be a bank building." Song also represented that he had "successful business and investment experience" and that this project would allow investors to "all comfortably retire and enjoy retirement life." Lee told some of the plaintiffs "there was no chance of a failure because they had carefully evaluated the plan."

         ¶ 10 In March 2010, shortly after the initial solicitation contact with defendants, all of the plaintiffs (with the exception of Yoon and Rah) were invited to attend an "investors meeting" at a City Sports store located in Chicago.[4] Approximately 30 to 40 Korean individuals attended this meeting, at which both defendants were present along with some of their business associates. Song started the meeting by giving a "speech" to the attendees about the project and explained " 'they' were investing in a Chinese bank, AMB, which 'they' could take over at a 'cheap price.' " Song stated that "by acquiring 51 shares of AMB stock, they could do anything they wanted with AMB" and open "a Korean bank *** 'like Foster Bank.' " At the end of the meeting, the attendees were given an "information sheet" to complete, which included providing their names, addresses, and the number of shares of AMB stock that they each intended to purchase.

         ¶ 11 2. Plaintiffs' Purchase of AMB Stock

         ¶ 12 Plaintiffs alleged that each of them ultimately purchased shares of AMB stock at the subscription price of $10 per share. In addition, each also contributed an additional sum of money for legal fees that defendants represented would be incurred for legal services in connection with opening a Korean bank. In the first amended verified complaint, each plaintiff also alleged certain facts that were personal and specific to his or her own purchase of the AMB stock (along with the payment for attorney fees) and the circumstances of defendants' solicitation and representations in connection with that purchase.

         ¶ 13 Kim alleged that after the March 2010 investors meeting, Song called his wife to urge her and Kim to purchase shares of AMB stock. Kim stated that, "[r]elying on representations of Lee and Song, and trust they had *** [he and his wife] decided to make the investment" and gave Song a check in the amount of $100, 000 on March 18, 2010. After Song called them about the attorney fees, Kim gave him a second check for $15, 000 for said fees. Kim had no contact with defendants or AMB, nor did he receive any documentation from them, after he delivered the checks to Song. In August 2011, after many of the investors had complained about the lack of contact and information from defendants and AMB, Lee and Song arranged for an investors meeting at Kim's restaurant in Mount Prospect. A few weeks later, Kim received a copy of his stock certificate for his AMB shares in the mail.

         ¶ 14 Cho alleged that he received a call from Song soon after the investors meeting and agreed to purchase 5000 shares. On March 17, 2010, while they were at a runners club meeting, Cho gave Song a check for $50, 000 and a second check for $10, 000. He had no contact with AMB and received no documentation from anyone following his March 2010 payments to Song, until sometime in August 2011, when he received his stock certificate in the mail from AMB, shortly after the investors met at Kim's restaurant.

         ¶ 15 Park alleged that he and his wife Keeim knew Lee from their runners club. Keeim called Lee after learning that he was "gathering investors to build a Korean bank." While attending the March 2010 investors meeting, Park saw other attendees writing checks for their subscriptions and "was intrigued by the idea of becoming a partner with Song and Lee in a bank business." He agreed to invest $100, 000 "[i]n reliance on [defendants' representations and representations of other speaker at the meeting" and gave Song a check for $100, 000 on April 1, 2010. A month later, Park gave him another $15, 000 check for attorney fees. Park complained about the lack of any contact or documentation from AMB during a meeting with defendants in August 2011. Within a couple of weeks, he received a form letter from AMB asking for a $200 payment for his stock certificate. He refused to pay the fee and did not receive his certificate.

         ¶ 16 Hyon alleged that Lee told her about the Korean bank project during a runners club meeting on March 15, 2010. Lee represented that AMB shares would jump from $10 per share to $20 or $30 per share within a year-like Foster Bank-and that "substantial arrangements were already made including scouting of bank staffs from Foster Bank and purchase of a building at Waukegan Avenue." Lee "assured [her] that *** City Sports would guarantee the reimbursement if the investment would go bad." Hyon alleged that, in "[t]rusting Lee and Lee's representations, Hyon and her husband agreed to purchase 10, 000 shares." On March 20, 2010, she gave Lee a cash payment in the amount of $100, 000 and later gave another cash payment of $15, 000 for attorney fees.[5] She was neither contacted by AMB nor given any documentation about her purchase of AMB stock, until August 2011, when she received, by mail, her stock certificate and a blank copy of a document entitled "Subscription Materials."

         ¶ 17 Rah alleged that in April 2011, Song called him and asked to meet with him. During their meeting, Song told him about "a Chinese bank on the market which 'they' could purchase at a 'cheap' price" and that "by acquiring majority shares in the Chinese bank, they could open a Korean bank." Song also told Rah that a $100, 000 investment would allow him to "become a major shareholder in the bank." On June 20, 2011, Rah gave Song a check for $50, 000 for AMB stock and a second check for $10, 000 in attorney fees. In August 2012, after he had not received any documentation for his stock purchase for over a year, Rah contacted AMB to complain. A few weeks later, his stock certificate arrived in the mail. In December 2012, Rah was invited to AMB's company year-end party at the Metro Bank in Chinatown, Chicago. While he was at the party, he learned that the price per share of AMB stock had fallen from $10 to about 80 cents and that there had been a stock split.

         ¶ 18 Yoon alleged that Lee, whom she knew from her runners club meetings, visited her in person on June 10, 2011, and explained the plan to acquire a controlling interest in AMB for purposes of opening a Korean bank. According to Yoon, "Lee further represented that he himself invested $400, 000 and that their mutual acquaintance, a Mr. Kwon, already invested $100, 000." Yoon alleged she "was influenced by this in making her decision regarding her investment, " and "[r]elying on Lee's representations, [she] agreed to invest $20, 000." The next day, Lee met with Yoon and took her cash payment of $20, 000 for the AMB stock. He met with her again the following day to collect a payment of $3000 for attorney fees. Yoon did not hear from AMB or Lee for over two years afterwards, and whenever she tried to contact Lee, he avoided her calls. In December 2012, Yoon learned that the value of the AMB share had dropped from $10 to about 85 cents. Following an in-person confrontation Yoon had with Lee in July 2013, Song visited Yoon and gave her "certain documents including an AMB stock certificate for 2, 000 shares which was issued to 'James JH Song and Jane Nan Song'on 9-3-10."[6]

         ¶ 19 In addition to the specific allegations above, all of the plaintiffs alleged that (1) they were never provided with any information regarding the "status" of the attorney's services or the attorney fees that they paid, (2) they were never furnished with any "written disclosure material" pertaining to AMB stock or AMB prior to their respective purchases of the stock shares, (3) they were never told (by either defendant) that AMB stock was an unregistered stock, and (4) they were never asked about their (or their spouses') personal "wealth or income" or about their financial circumstances.

         ¶ 20 3. Claims Asserted in Counts I, III, and IV

         ¶ 21 Count I purported to allege an action based on common-law fraud and set forth 16 specific oral representations that defendants purportedly made to one or more of the plaintiffs prior to their purchases of the AMB stock. After identifying each representation, plaintiffs alleged that it "was false." A few examples follow:

[118] Defendants' representation to the Plaintiffs that they were soliciting Korean investors for investments in order to acquire majority shares for AMB was false.
[119] Defendants' representation to the Plaintiffs that they were planning to acquire majority shares of AMB in order to ...

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