Bank of Northern Illinois v. Nugent, 2-91-0026

• Decision Date: 24 December 1991
• Docket Number: No. 2-91-0026,2-91-0026
• Citation: 584 N.E.2d 948,223 Ill.App.3d 1,165 Ill.Dec. 514
• Parties: , 165 Ill.Dec. 514, RICO Bus.Disp.Guide 7924 BANK OF NORTHERN ILLINOIS, f/k/a First Trust and Savings Bank of Glenview, et al., Plaintiffs-Appellants, v. Mary Jane NUGENT, et al., Defendants-Appellees (Donald J. Moyers, et al., Defendants).
• Court: United States Appellate Court of Illinois

Page 948

584 N.E.2d 948

223 Ill.App.3d 1, 165 Ill.Dec. 514, RICO

Bus.Disp.Guide 7924

BANK OF NORTHERN ILLINOIS, f/k/a First Trust and Savings Bank of Glenview, et al., Plaintiffs-Appellants, v. Mary Jane NUGENT, et al., Defendants-Appellees (Donald J Moyers, et al., Defendants).

No. 2-91-0026.

Appellate Court of Illinois,

Second District.

Dec. 24, 1991.

J. Michael Fitzsimmons (argued), Fitzsimmons, Roberts, Bowen & Paine, Oak Brook, Jerome J. Roberts, Fitzsimmons, Roberts, Bowen & Paine, Chicago, Michael L. Ralph, Michael M. Melius, Richards, Ralph, Eiden, Eckert & O'Donnell, Chtd., Vernon Hills, for Bank of Northern Illinois and Bank of Northern Illinois, N.A.

Robert A. Carson, Kathryn S. Matkov (argued), Edward A. Trio (argued), Paul W. Carroll, Gould & Rather, Chicago, for Mary Jane Nugent, Michael C. Nugent, E. William Nugent.

Roger Littman, Michael Resis (argued), Querrey & Harrow, Ltd., Chicago, for Estate of Edward W. Nugent.

Mitchell W. Ziven, Northbrook, John D. Daniels, Sanchez & Daniels, Chicago, for defendants-appellees.

Justice McLAREN delivered the opinion of the court:

The plaintiffs appeal from an order dismissing counts I and II of their first amended complaint with prejudice, pursuant to sections 2-615 and 2-619 of the Code of Civil Procedure (Code) (Ill.Rev.Stat.1989 ch. 110, pars. 2-615, 2-619). They also appeal from an order denying leave to amend the complaint and to substitute parties. We affirm in part, reverse in part, and remand.

I. BACKGROUND

Classic Auto Leasing, Inc. (Classic), was an Illinois corporation, engaged in the business of leasing new automobiles. It was owned and operated by Edward W. Nugent, Jr. (decedent Nugent), from April 1987, until his death in October 1988. Classic was subsequently controlled by Mary Jane Nugent, as administrator of decedent's estate (Estate), who appointed her sons Michael C. Nugent and Edward William Nugent III to run the business.

On February 28, 1989, the plaintiff Bank of Northern Illinois, formerly known as First Trust & Savings Bank of Glenview, filed a claim against the Estate of Nugent to collect on two guarantees for credit extended to Classic. The lines of credit took the form of two promissory notes. The first was dated November 30, 1987, in the amount of $322,000. The second was dated December 1, 1987, in the amount of $300,000. The loans were secured by guarantees of decedent Nugent, Donald J. Moyers and Rick Ozuk, employees of Classic, in limited percentages. Decedent Nugent provided additional personal guarantees for the full amount of each note. On April 4, 1989, a judgment on the claim was entered against the Estate for the full amount of the notes, plus interest.

In addition to the entry of the judgment, the plaintiff banks filed an amended complaint in three counts, naming as defendants the Estate of Edward W. Nugent, Jr. (Estate); the decedent's widow, Mary Jane Nugent (Mary Jane); the decedent's sons, Michael C. Nugent (Michael) and Edward William Nugent III (Edward); Classic Auto Leasing, Inc. (Classic); and employees Donald J. Moyers (Moyers) and Rick Ozuk (Ozuk).

Count I of the amended complaint alleged that Moyers, Ozuk, Michael, Edward, and Mary Jane engaged in tortious fraudulent conduct. It specifically alleged that the above-named defendants perpetrated a fraud on the banks by causing Classic to use proceeds advanced in a manner inconsistent with the terms of the loan agreement.

Pursuant to the agreement, Classic was to use funds advanced to finance the purchase of new automobiles for future leasing and to repay the bank immediately upon receipt of payment. However, Moyers, Ozuk, and decedent Nugent are alleged to have used the funds to draw their salaries, as well as for other personal expenses. It is also alleged in count I that Michael and Edward misrepresented Classic's financial circumstances to the plaintiffs following Nugent's death, by requesting funding for automobiles which had already been transferred to the final purchasers and were no longer assets of Classic.

Count II of the complaint alleged that the above-described conduct constitutes a pattern or scheme to defraud a financial institution, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. §§ 1962(a) through (d) (1988)).

Count III alleged that Moyers and Ozuk breached the loan contract with the bank by failing to honor their guarantees on the promissory notes. This count, however, is not subject to this appeal, as these defendants are in default for failing to appear and answer.

The Estate filed a motion to dismiss counts I and II of the complaint pursuant to section 2-619(a)(3) of the Code (Ill.Rev.Stat.1989, ch. 110, par. 2-619(a)(3)). The basis for this motion was that count I prayed for recovery on the same notes for which a judgment was previously entered, which is duplicative and therefore barred, because "[t]here is another action pending between the same parties for the same cause." (Ill.Rev.Stat.1989, ch. 110, par. 2-619(a)(3).) The Estate argued in its motion that count II should also be dismissed, because a RICO claim cannot be maintained against an estate.

After hearing arguments on the Estate's motion, the court dismissed counts I and II of the plaintiffs' amended complaint with prejudice and denied the plaintiffs' motion to further amend the complaint to name Mary Jane in her capacity as administrator of the Estate.

Michael, Edward, and Mary Jane Nugent subsequently filed a motion to dismiss counts I and II of the complaint pursuant to section 2-615 of the Code, for failing to state a cause of action. The Nugents argued in their motion that count I, the fraud claim, should be dismissed, because the promise to limit the use of the line of credit for purposes delineated in the loan agreement is merely a promise of intent to perform a future action, which is insufficient to support a cause of action for fraud. They further argued that count II should also be dismissed, because the conduct consists of a single isolated injury, which does not constitute a "pattern" or "scheme" necessary to state a cause of action under RICO.

Thereafter, the plaintiffs filed a motion to reconsider the section 2-619 dismissal. The court heard arguments on the motion to reconsider and the section 2-615 dismissal simultaneously. It dismissed counts I and II against the Estate and confirmed its denial of leave to amend the complaint to name Mary Jane in her capacity as administrator of the Estate. Pursuant to the section 2-615 motion, the court dismissed counts I and II as to Mary Jane and dismissed only count II as to Michael and Edward. All of the dismissals were with prejudice.

Accordingly, the plaintiffs appeal from both the section 2-619 dismissal of the Estate and the subsequent section 2-615 dismissal of the Nugents. The central issues as to the section 2-619 dismissal are whether the judgment on the promissory notes against the Estate serves as a bar to the causes of action for fraud and whether a RICO claim can be maintained against an estate. The issue as to the section 2-615 dismissal is whether the court erred in determining that the complaint failed to state causes of action in fraud and under RICO. Also at issue is whether the court abused its discretion by refusing to allow the plaintiffs to amend the complaint and plead over.

II. ANALYSIS

A. PROCEEDING UNDER SECTION 2-615 OR SECTION 2-619

The legal theories for proceeding on a motion to dismiss under section 2-615 and section 2-619 differ. Although all well-pleaded facts of the complaint are admitted and taken as true in both motions, the legal sufficiency of the complaint is disputed in a section 2-615 motion, but admitted in a section 2-619 motion. When a court dismisses under section 2-619, a subsequent dismissal under 2-615 is not logical, because the legal sufficiency of the complaint has been previously assumed by virtue of the section 2-619 motion. (See Morrey v. Kinetic Services, Inc. (1985), 133 Ill.App.3d 1002, 1004, 88 Ill.Dec. 933, 479 N.E.2d 953 (the court stated in support of its reversal that there would have been no need for summary judgment if the motion to dismiss the complaint had been granted).) Therefore, it is inherently inconsistent for a court to dismiss under section 2-619 and subsequently entertain a section 2-615 dismissal.

Our supreme court confronted this type of problem when the trial court examined a hybrid motion to dismiss with a motion for summary judgment in Janes v. First Federal Savings & Loan Association (1974), 57 Ill.2d 398, 312 N.E.2d 605.) It stated in pertinent part:

"To combine an inquiry into whether a pleading is sufficient to state a cause of action with an examination which almost necessarily assumes that a cause of action has been stated and proceeds to determine whether there are any material issues of fact to be tried is likely to confuse both the parties and the court. If this sort of procedure were sanctioned, it would be left to the reviewing courts to sort matters out and to remand with directions to allow leave to amend the complaint * * *. * * * The defendants in this case should have first challenged the legal sufficiency of the complaint. When, and only when, a legally sufficient cause of action had been stated should the court have entertained the motions for summary judgment and considered the affidavits filed in support thereof." (Janes, 57 Ill.2d at 406, 312 N.E.2d 605.)

In spite of the criticism of hearing such a hybrid motion, the Janes court considered the case on the merits in the interest of judicial economy. (See Janes, 57 Ill.2d at 407, 312 N.E.2d 605.) Other courts have followed Janes by reviewing the merits of improper motions to dismiss, indicating that a combined motion is not grounds for reversal absent a showing of prejudice. See Sutton v. Mytich (1990), 197 Ill.App.3d 672, 676, 144 Ill.Dec. 196, 555 N.E.2d 93; MBL (USA) Corp. v. Diekman (1985), ...