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Signapori v. Jagaria

Court of Appeals of Illinois, First District, Sixth Division

July 28, 2017

RICHARD SIGNAPORI and ESHAAN HOSPITALITY, INC., an Illinois Corporation, Plaintiffs-Appellants and Cross-Appellees,
v.
JIGNESH JAGARIA and NOVAK HOSPITALITY, INC., an Illinois Corporation, Defendants-Appellees and Cross-Appellants.

         Appeal from the Circuit Court of Cook County. No. 15 L 5220 Honorable Patrick J. Sherlock, Judge Presiding.

          JUSTICE CUNNINGHAM delivered the judgment of the court, with opinion. Presiding Justice Hoffman and Justice Delort concurred in the judgment and opinion.

          OPINION

          CUNNINGHAM JUSTICE.

         ¶ 1 The plaintiffs, Richard Singapori and Eshaan Hospitality, Inc. (Eshaan), filed the instant action against the defendants, Jignesh Jagaria and Novak Hospitality, Inc. (Novak), alleging breach of a confidentiality provision contained in an "Agreement" between the parties.[1] The circuit court granted the defendants' motion to dismiss, finding that the confidentiality provision at issue was void and unenforceable as a matter of public policy because its sole purpose was to conceal the parties' misrepresentations to third-party financial institutions. On appeal, the plaintiffs argue that the court erred in determining that the confidentiality provision is contrary to public policy because allegations of the amended complaint do not establish that the parties violated federal bank fraud laws (see 18 U.S.C. §§ 1344, 1014 (2012)). The defendants cross- appeal, contending that the court erred in denying their petition for attorney fees. For the reasons that follow, we affirm.

         ¶ 2 The following facts are derived from the various pleadings, which we accept as true in the context of a motion to dismiss. See Wackrow v. Niemi, 231 Ill.2d 418, 420 (2008).

         ¶ 3 Singapori and Jagaria, uncle and nephew, were the sole shareholders of two corporations, Eshaan and Novak. Singapori held a 51% ownership interest in both corporations, while Jagaria held the remaining 49% interest. In June 2011, Singapori and Jagaria became interested in purchasing a Red Roof Inn hotel in Deerfield, Illinois. To finance the purchase, Singapori and Jagaria, on Eshaan's behalf, applied for two loans in the amount of $1, 317, 500 and $946, 000 from the International Bank of Chicago (IBC) and SomerCor 504 (SomerCor), respectively. Both loans were to be guaranteed by the Small Business Administration (SBA).[2] A partial copy of the loan application submitted to the IBC is attached as an exhibit to the amended complaint. The first page of that application contains a cautionary note, immediately above Jagaria's signature, stating: "Applicant(s) are aware that any knowing or willful false statements for the purposes of influencing the actions of Creditor can be a violation of federal law 18 U.S.C. sec. 1014 and may result in fine or imprisonment or both." The amended complaint alleges that Jagaria made several false statements in the loan application regarding his citizenship status, arrest history, and his experience in the hotel industry, notwithstanding the admonition requiring candor and truthfulness. The IBC and SomerCor both approved Eshaan's request for a loan.

         ¶ 4 At the closing, on August 8, 2011, Eshaan executed two notes, promising to repay the loans. IBC's note provided that any ownership change of 25% or more of the common stock of Eshaan would constitute a default, while the note with SomerCor stated that any changes in "ownership or business structure without [SomerCor]'s prior written consent" would trigger a default. Upon default, IBC and SomerCor would have the right to require immediate payment of all amounts owing under their respective notes. In addition to the security agreements, Singapori was required to sign a personal guaranty of the loans, as well as a "Borrower and Operating Company Certification, " upon which he certified that he "will not, without the prior written consent *** change the ownership structure of or interests in the Borrower and Operating Company during the term of the Note ***."

         ¶ 5 Less than a year later, Singapori and Jagaria became interested in purchasing another Red Roof Inn hotel, this time in Lansing, Illinois (hereinafter referred to as the "Lansing hotel"). In April 2012, Singapori and Jagaria, on behalf of Novak, applied for two loans in the amount of $1.25 million and $758, 000 from the IBC and SomerCor, respectively. Again, both loans were to be guaranteed by the SBA. The amended complaint alleges that Jagaria made several false statements in the loan application to SomerCor regarding his citizenship status, arrest history, and his experience in the hotel industry. The loan application also states that Singapori and Jagaria each have a 50% ownership interest in Novak.

         ¶ 6 After the loan applications were submitted to the IBC and SomerCor, a dispute arose between Singapori and Jagaria, which delayed their ability to obtain financing. On September 19, 2012, Singapori and Jagaria entered into an "Agreement" to "resolve their differences and move forward with the purchase of [the] Lansing [hotel] and adjust their respective interests in [Eshaan and Novak]." The amended complaint alleges that, pursuant to the "Agreement, " Singapori transferred all of his shares in Novak to Jagaria, and Jagaria transferred all of his shares in Eshaan to Singapori. As a consequence, Singapori became the sole owner of Eshaan and Jagaria became the sole owner of Novak.

         ¶ 7 Although Singapori and Jagaria sought to terminate their business relationship and shared ownership interest in Eshaan and Novak, section 7 of the "Agreement" required the parties to work together to ensure the successful operation of their hotels. That section provides as follows:

"7. The parties agree to fully cooperate with each other and to take all actions and perform all acts as shall be necessary for the successful operation of the respective hotels. Said cooperation shall include the signing of corporate, financial, franchise and other documents as shall be needed from time to time and to execute any and all deeds, affidavits, bills of sale and all other closing documents ***."

         ¶ 8 Moreover, according to the amended complaint, the parties recognized that "severe negative financial consequences could occur *** if the terms of the Agreement were not kept strictly confidential." For example, disclosure of the ownership change in Eshaan could trigger a default under Eshaan's loans with the IBC and SomerCor, while disclosure of the ownership change in Novak could result in the denial of its pending loan applications. As a consequence, the parties' "Agreement" contained "a strict confidentiality provision, which included a liquidated damages clause to ensure confidentiality and guard against the uncertainty of *** whether disclosure would or would not result in defaults under the various [loan] agreements and guarantees." Section 8 of the "Agreement" states as follows:

"8. The terms of this Agreement shall be kept confidential between the parties and shall not be disclosed for any reason to any person or entity including any bank, financial institution, franchisor, employee, agent or attorney without the prior written consent of the other party. Any disclosure without written approval of the other party shall require the payment of the sum of ONE HUNDRED THOUSAND DOLLARS ($100, 000.00) to the non-disclosing party for each incident or event of prohibited disclosure without any necessity of proof of actual damages by the other. All claims of improper disclosure must be proven by a claiming party to a court of competent jurisdiction as a prerequisite to any liability of a party under this paragraph."

         ¶ 9 In October 2012, following execution of the "Agreement, " the IBC and SomerCor agreed to loan Novak $1.25 million and $758, 000, respectively. Although Singapori no longer held an ownership interest in Novak, he signed various closing documents purporting to be the "President" of the company, including a note, a loan agreement, and a "Borrower's Certification to Lender, " certifying that Novak has provided accurate financial information and will not change its ownership structure without the prior written consent of the IBC, SomerCor, or the SBA. He also signed a personal guaranty of the loans. The loan and guaranty documents enumerate various events of default, including changes in ownership or business structure without prior written consent; the failure to disclose material facts; and making materially false or misleading representation to the IBC, SomerCor, or the SBA.

         ¶ 10 At some point after Singapori and Jagaria entered into the "Agreement, " Jagaria's family became involved in a dispute that proceeded to litigation in India. During the course of that litigation, Jagaria submitted an affidavit to the Indian court, which disclosed the contents of the "Agreement" without Singapori's or Eshaan's written consent. In the affidavit, Jagaria stated, in pertinent part, as follows:

"32. With the assistance of attorneys, Richard Singapori and I drafted and signed an agreement that provided I surrender my 49% interest in Red Roof Inn of [Deerfield] and that Richard Singapori pay me $600, 000. I used ...

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