Lagen v. Balcor Co.

• Decision Date: 27 July 1995
• Docket Number: No. 2-94-1245,2-94-1245
• Citation: 653 N.E.2d 968,210 Ill.Dec. 773,274 Ill.App.3d 11
• Parties: , 210 Ill.Dec. 773 George LAGEN et al., Plaintiffs-Appellants, v. BALCOR COMPANY et al., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 968

653 N.E.2d 968

274 Ill.App.3d 11, 210 Ill.Dec. 773

George LAGEN et al., Plaintiffs-Appellants, v. BALCOR COMPANY et al., Defendants-Appellees.

No. 2-94-1245.

Appellate Court of Illinois Second District.

July 27, 1995.

Burton I. Weinstein, Seth R. Halpern, Baskin, Server, Berke, Weinstein & Spiro, Chicago, for plaintiffs-appellants.

Joseph L. McEntee, Lee Ann Russo, C. Edward Watson II, Patrick T. Stanton, Jones, Day, Reavis & Pogue, Chicago, for Balcor Co.

Linda K. Stevens, Richard J. Hoskins, Schiff, Hardin & Waite, Chicago, for Charles Walsh.

Justice HUTCHINSON delivered the opinion of the court:

Plaintiffs, comprised of 76 investors, appeal the trial court's orders dismissing their complaint with prejudice pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1992)). Defendants, The Balcor Company (Balcor) and Charles Walsh (Walsh), solicited more than $15,500,000 from plaintiffs to purchase ownership shares in 13 real estate limited partnerships. Plaintiffs initiated this action after the limited partnerships failed to provide them either profits or tax benefits.

Plaintiffs' third amended complaint, comprised of the second amended complaint and the "Amendment on its Face, of the Second Amended Complaint" (complaint), sets forth three possible theories of liability. Plaintiffs contend defendants (1) fraudulently induced plaintiffs to invest in various limited partnerships; (2) breached their fiduciary duty by inducing plaintiffs to purchase shares in the limited partnerships; and (3) violated the Consumer Fraud and Deceptive Practices Act (Act) (see 815 ILCS 505/2 (West 1992)) in soliciting plaintiffs' investments.

The trial court dismissed the complaint for failure to state a cause of action. In its order of September 28, 1994, the trial court stated "the representations contained in the [Private Placement Memorandum (PPM) ] * * * disclosure information preclude plaintiffs from stating fraud and breach of fiduciary duty as a matter of law." Plaintiffs contend the trial court erred in dismissing the complaint. We affirm.

Defendants argue the trial court erred by not dismissing plaintiffs' statutory claim for being filed approximately six years after the statute of limitations had run. The record does not indicate defendants filed either a notice of cross-appeal or a separate appeal. Appellees may not argue alleged errors unless they timely file a notice of cross-appeal or a separate appeal. (Harding v. City of Highland Park (1992), 228 Ill.App.3d 561, 572, 169 Ill.Dec. 448, 591 N.E.2d 952; See 134 Ill.2d R. 303(a)(3).) We, therefore, will not address defendants' argument.

Before reaching the merits, we address defendants' use of footnotes. "Footnotes, if any, shall be used sparingly." (145 Ill.2d R. 341(a).) Defendants' brief contains 35 footnotes. Many of these footnotes contain substantive argument which should be presented in the body of the brief. Several of the footnotes occupy more than one-half of a page. All of the footnotes are single spaced. This cannot be characterized as using footnotes "sparingly." We also note defendants' brief is 71 pages long. The page limitation of Rule 341(a) would likely have been violated had the footnotes been integrated into the body of the brief. (See 145 Ill.2d R. 341(a) (page limitation for appellant's and appellee's briefs, if not printed, is 75 pages).) Using footnotes to circumvent the page limitation violates "the spirit, and probably * * * the letter, of the law." In re Estate of Marks (1992), 231 Ill.App.3d 313, 320, 172 Ill.Dec. 356, 595 N.E.2d 717.

We hold that defendants' use of footnotes violates Rule 341(a). Adherence to the page limitations and guidelines for footnote usage is not an inconsequential matter. (See Zadrozny v. City Colleges of Chicago (1991), 220 Ill.App.3d 290, 292, 163 Ill.Dec. 93, 581 N.E.2d 44.) Neither are these limitations and guidelines arbitrary exercises of the supreme court's supervisory powers. (47th & State Currency Exchange, Inc. v. B. Coleman Corp. (1977), 56 Ill.App.3d 229, 232, 13 Ill.Dec. 577, 371 N.E.2d 294.) On the contrary, Rule 341 represents the Illinois Supreme Court's considered opinion of the format that best facilitates the clear and orderly presentation of arguments. Parties ignore Rule 341 at their peril. On our own motion, therefore, defendants' footnotes are stricken.

Balcor is a national syndicator of real estate limited partnerships. Balcor along with Walsh were co-general partners of the limited partnerships in which plaintiffs invested.

Walsh is the sole shareholder and chief operating officer of Associated Professional Consultants, Inc. (APC). APC is a consulting firm providing physicians and dentists with both management and investment advice. Plaintiffs allege Walsh personally acted as their investment consultant.

Walsh solicited plaintiffs to invest in various real estate limited partnerships offered by Balcor. Walsh sent newsletters on APC letterhead to plaintiffs describing the limited partnerships. The limited partnerships were presented as "tax shelters." Each partnership had a finite number of partnership shares. Shares were available on a "first-come, first-served" basis. APC clients who expressed interest were forwarded additional materials.

Before investing in any of the limited partnerships, plaintiffs were sent a PPM. The PPMs varied in length. Some were over 100 pages long. Each PPM served as an offer to invest in a limited partnership. Although each PPM was tailored to a specific limited partnership, much of the language alerting prospective limited partners to the risks of such real estate ventures was common to all the PPMs. Each PPM contained detailed information concerning, inter alia, the partnership; the real estate held by the partnership; the compensation to be paid to the general partner and its affiliates; the risks attendant to the partnership; conflicts of interest between the partnership and the general partner and its affiliates; as well as the tax and legal aspects of the partnership. The type of font used did not vary within each PPM (except for the use of boldface and italics to delineate sections and subsections, respectively).

Only individuals fulfilling specific financial criteria were eligible to invest in the partnerships. While we have reviewed the financial criteria set forth in each PPM, we discuss only the requirements listed in the earliest and latest offering documents. These two documents illustrate the evolution of the financial criteria over the pertinent time period. The PPM for Canton Associates, Ltd., dated August 17, 1979, stated that only persons with either (1) a net worth (excluding home, furnishings and automobiles) of $100,000 and an expectation of income over a three-year period taxable in the 50% Federal income tax bracket; or (2) a net worth (excluding home, furnishings and automobiles) of $300,000 were eligible to invest.

Approximately six years later, the Quail Run Associates PPM contained even more stringent criteria. To be an eligible investor, a party would have to (1) have an annual income greater than $200,000 for the last two years, expect to have an annual income of $200,000 for the current year, and have a net worth (excluding home, furnishings and automobiles) of at least three times the proposed investment; or (2) have an expectation of income during the current year taxable in the 42% Federal income tax bracket and either (a) have a net worth (excluding home, furnishings and automobiles) of either four or five times (depending on the prospective investor's home State) the proposed investment, (b) be investing at least $150,000 and such figure does not exceed 20% of the investor's net worth, or (c) have a net worth in excess of $1 million (including home, furnishings and automobiles). By signing a signature page each plaintiff represented and warranted he or she met the financial criteria set forth in the PPM.

A complaint should be dismissed under section 2-615 for failure to state a cause of action only when it clearly appears that no set of facts could be proved under the pleadings which would entitle the plaintiff to relief. (Ogle v. Fuiten (1984), 102 Ill.2d 356, 360-61, 80 Ill.Dec. 772, 466 N.E.2d 224; Capitol Indemnity Corp. v. S. Smith Intermediaries, Inc. (1992), 229 Ill.App.3d 119, 123, 171 Ill.Dec. 52, 593 N.E.2d 872; Groenings v. City of St. Charles (1991), 215 Ill.App.3d 295, 299, 158 Ill.Dec. 923, 574 N.E.2d 1316.) This broad statement, however, should not be interpreted as an adoption of notice pleading. (Capitol, 229 Ill.App.3d at 123, 171 Ill.Dec. 52, 593 N.E.2d 872.) Illinois remains a fact-pleading jurisdiction. Oravek v. Community School District 146 (1994), 264 Ill.App.3d 895, 898, 202 Ill.Dec. 15, 637 N.E.2d 554.

A section 2-615 motion admits all well-pleaded facts as true, but not conclusions of law or factual conclusions which are unsupported by allegations of specific facts. (Talbert v. Home Savings of America, F.A. (1994), 265 Ill.App.3d 376, 379, 202 Ill.Dec. 708, 638 N.E.2d 354.) If after disregarding any legal and factual conclusions the complaint does not allege sufficient facts to state a cause of action, the motion to dismiss should be granted. (Groenings, 215 Ill.App.3d at 300, 158 Ill.Dec. 923, 574 N.E.2d 1316.) In ruling on a motion to dismiss for failure to state a cause of action, the complaint's factual allegations are to be interpreted in the light most favorable to the plaintiff, but factual deficiencies may not be cured by liberal construction. Groenings, 215 Ill.App.3d at 300, 158 Ill.Dec. 923, 574 N.E.2d 1316.

In making our decision, we consider the PPMs even though they were not appended as exhibits to the complaint. Both plaintiffs' claim and defendants' defense are largely founded upon the PPMs. Section 2-606 of the Civil Practice Law provides "[i]f a claim or defense is founded upon a written instrument, a copy thereof *...