People ex rel. Ryan v. Telemarketing Assoc.

• Decision Date: 21 November 2001
• Docket Number: No. 89738.,89738.
• Citation: 198 Ill.2d 345,763 N.E.2d 289,261 Ill.Dec. 319
• Court: Illinois Supreme Court
• Parties: The PEOPLE of the State of Illinois ex rel. James E. RYAN, Attorney General of Illinois, Appellant, v. TELEMARKETING ASSOCIATES, INC., et al., Appellees.

763 N.E.2d 289

198 Ill.2d 345

261 Ill.Dec. 319

The PEOPLE of the State of Illinois ex rel. James E. RYAN, Attorney General of Illinois, Appellant, v. TELEMARKETING ASSOCIATES, INC., et al., Appellees.

No. 89738.

Supreme Court of Illinois.

November 21, 2001.

Rehearing Denied February 4, 2002.

James E. Ryan, Attorney General, Springfield (Joel D. Bertocchi, Solicitor General, Jerald S. Post, Floyd D. Perkins, Matthew D. Shapiro, Assistant Attorneys General, Chicago, of counsel), for appellant.

Michael A. Ficaro, Susan G. Feibus, of Ungaretti & Harris, David B. Goroff, of Hopkins & Sutter, Chicago, for appellees.

Justice McMORROW delivered the opinion of the court:

In an amended complaint, the Attorney General, representing the people of this state, alleged that Telemarketing Associates, Inc., and Armet, Inc., corporations which operate as professional fund-raising services, and their director-owner, Richard Troia (collectively, the defendants), committed fraud and breached their fiduciary duty. The charged offenses were premised on the fact that defendants retained 85% of charitable funds collected on behalf of a charity, VietNow National Headquarters (VietNow), and, when soliciting, failed to inform donors that only 15% of their contribution would be distributed to the charity. The circuit court dismissed the complaint, finding that no cause of action had been stated under the facts alleged. The appellate court affirmed. 313 Ill. App.3d 559, 246 Ill.Dec. 314, 729 N.E.2d 965. We granted the Attorney General's petition for leave to appeal (see 177 Ill.2d R. 315) and now affirm the judgment of the appellate court.

BACKGROUND

The circuit court dismissed the Attorney General's amended complaint after defendants brought a motion to dismiss pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1998)). A motion to dismiss brought under section 2-615 admits all well-pled facts in the plaintiff's complaint. Connick v. Suzuki Motor Co., 174 Ill.2d 482, 490, 221 Ill.Dec. 389, 675 N.E.2d 584 (1996). Consequently, the following facts, taken from the Attorney General's complaint, are accepted as true.

Telemarketing Associates, Inc. (Telemarketing), and Armet, Inc. (Armet), are professional, for-profit fund-raising corporations which are wholly owned and controlled by Richard Troia. In accord with contracts negotiated with VietNow, an Illinois-based, not-for-profit corporation registered as an Illinois charitable trust, Telemarketing and Armet solicited funds on behalf of VietNow beginning in July 1987 and continuing into 1996. Pursuant to its contracts with VietNow, Telemarketing retained 85% of the gross collections in the State of Illinois "as its total compensation for all efforts and costs associated with the Marketing Program." Armet, through Troia, brokered fund-raising contracts between VietNow and various out-of-state, third-party solicitors. Pursuant to these contracts, VietNow received 10% of the gross receipts for out-of-state solicitations, while Armet, as the broker, received between 10% and 20% of these gross receipts.

Annual financial reports submitted to the Attorney General, as required by law (see 225 ILCS 460/4 (West 1998)), show that, from July 1987 until the end of 1995, defendants' fund-raising efforts on behalf of VietNow resulted in collection of $7,127,851. Of that amount, $6,073,887 was retained by defendants, netting Viet-Now $1,053,964, an amount just under 15% of the gross receipts.

VietNow does not complain that it did not receive the amounts for which it contracted, and there is no suggestion that defendants have not fully complied with the terms of their contracts. Further, VietNow has never expressed dissatisfaction with the fund-raising services provided by defendants and there is no allegation that defendants made affirmative misstatements to potential donors.

In an initial complaint filed on May 30, 1991, the Attorney General charged defendants with common law fraud and breach of their duty as fiduciaries of charitable assets. The complaint alleged that defendants, when making telephone solicitations on behalf of VietNow, represented that funds donated would go to further Viet-Now's charitable purpose. However, according to the Attorney General, because the fees charged by defendants for conducting solicitation were "excessive in amount and an unreasonable use and waste of charitable assets," and because defendants did not advise donors that only 15% of the funds raised would be turned over to VietNow, defendants' solicitations were "knowingly deceptive and materially false" and constituted fraud and a breach of their fiduciary duty. The Attorney General asked the circuit court to surcharge the defendants for assets found to have been misspent or misused and to enjoin defendants from further solicitation.

The Attorney General amended his complaint on June 25, 1996, by adding paragraphs which alleged that defendants had renewed their contracts with VietNow and, under the same terms as before, had continued to solicit funds on behalf of Viet-Now into 1996. It was further alleged that defendants' solicitations were in violation of section 15(b)(5) of the Solicitation for Charity Act (225 ILCS 460/15(b)(5) (West 1996)), which requires professional fund-raisers to identify "fully and accurately" the purpose for which funds are solicited. The Attorney General contended that defendants violated this provision because they materially misrepresented the purpose for which funds were being solicited by telling contributors, either explicitly or implicitly, that funds collected would be used to help veterans, and that these statements were inherently false and misleading in light of the high percentage of funds retained by the defendants.

The complaint further alleged that defendants, by failing to reveal to donors the percentage of the contribution which would actually go to the charity, obtained money from donors under false pretenses. The same conduct was also alleged to constitute fraud under the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 1996)) and under section 2 of the Uniform Deceptive Trade Practices Act (815 ILCS 510/2 (West 1996)). The complaint requested all available remedies and penalties authorized by section 9 of the Solicitation for Charity Act (225 ILCS 460/9 (West 1998)), including an injunction prohibiting defendants from conducting any future fundraising services and forfeiture of their collected fees.

On September 6, 1996, defendants filed a section 2-615 motion to dismiss, arguing that charitable solicitations were protected speech under the first amendment. Defendants contended that, pursuant to Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 108 S.Ct.2667, 101 L.Ed.2d 669 (1988), a claim of fraud could not be maintained when the basis for the complaint was the percentage of proceeds retained by the fund-raisers and the failure to volunteer information concerning the amount of the proceeds that would go to the charity.

The trial court granted the motion to dismiss, but allowed the Attorney General to amend his complaint. On December 4, 1996, the Attorney General filed an amended complaint. In addition to the previous allegations, the Attorney General now alleged that defendants' retention of 85% of the gross proceeds, although contracted for and agreed to by VietNow, constituted fraud because defendants retained donor lists from year to year and, accordingly, should have incurred decreased administrative costs. Thus, it was alleged, defendants' retention of donor lists was evidence that defendants' fee was not justified by high administrative costs.

Defendants again filed a section 2-615 motion to dismiss, which was granted. The dismissal was affirmed on appeal. 313 Ill.App.3d 559, 246 Ill.Dec. 314, 729 N.E.2d 965. This court granted the Attorney General's petition for leave to appeal. 177 Ill.2d R. 315.

ANALYSIS

As noted above, the circuit court dismissed the Attorney General's complaint after defendants brought a section 2-615 motion to dismiss. A section 2-615 motion to dismiss challenges the legal sufficiency of the complaint. Urbaitis v. Commonwealth Edison, 143 Ill.2d 458, 475, 159 Ill.Dec. 50, 575 N.E.2d 548 (1991). When reviewing a section 2-615 dismissal, the reviewing court must determine whether the allegations, when construed in the light most favorable to the plaintiff, are sufficient to establish a cause of action upon which relief may be granted. Connick v. Suzuki Motor Co., 174 Ill.2d 482, 490, 221 Ill.Dec. 389, 675 N.E.2d 584 (1996). Dismissal will be held proper only if it clearly appears that no set of facts can be proved under the pleadings which will entitle the plaintiff to recover. Bryson v. News America Publications, Inc., 174 Ill.2d 77, 86-87, 220 Ill.Dec. 195, 672 N.E.2d 1207 (1996). We review de novo a section 2-615 motion to dismiss. Neade v. Portes, 193 Ill.2d 433, 439, 250 Ill.Dec. 733, 739 N.E.2d 496 (2000); Abbasi v. Paraskevoulakos, 187 Ill.2d 386, 391, 240 Ill.Dec. 700, 718 N.E.2d 181 (1999).

The Attorney General argues that the circuit court erred in dismissing his amended complaint. He contends that the complaint is legally sufficient because it sets forth all of the elements necessary to state a valid cause of action for common law fraud. According to the Attorney General, it is a material misrepresentation for defendants to tell prospective donors that funds solicited on behalf of VietNow are to be used for a charitable purpose when, in fact, defendants retain 85% of the funds solicited and fail to reveal that fact to potential donors at the point of solicitation.

The Attorney General further contends that the alleged misrepresentations also constitute constructive fraud and breach of fiduciary duty because the defendants' retention of 85% of the solicited proceeds, even if there was no intent to deceive, is ...