Rein v. David A. Noyes and Co.

• Decision Date: 06 April 1992
• Docket Number: No. 2-91-0992,2-91-0992
• Citation: 230 Ill.App.3d 12,595 N.E.2d 565
• Parties: , 172 Ill.Dec. 204 Arlie J. REIN et al., Plaintiffs-Appellants, v. DAVID A. NOYES AND COMPANY et al., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 565

595 N.E.2d 565

230 Ill.App.3d 12, 172 Ill.Dec. 204

Arlie J. REIN et al., Plaintiffs-Appellants, v. DAVID A. NOYES AND COMPANY et al., Defendants-Appellees.

No. 2-91-0992.

Appellate Court of Illinois Second District.

April 6, 1992.

Rehearing Denied July 31, 1992.

Richard W. Husted, Dundee, Arlie J. Rein, Brenda H. Rein, Robert H. Miller, and Donald C. Miller.

William J. Foote Dreyer, Foote, Streit, Furgason & Slocum, P.A., Aurora, James J. Moylan, Bonnie L. MacFarlane, James J. Moylan and Associates, Ltd., Chicago, for David A. Noyes & Co., and John Rath. Justice GEIGER delivered the opinion of the court:

In 1990, the plaintiffs Arlie and Brenda Rein, Robert and Donald Miller, and Lorraine Fehrmann filed separate complaints against the corporate defendant, David A. Noyes and Company (Noyes), and its agents John Rath and Ronald Ainsworth, alleging that the defendants fraudulently misrepresented the character of securities that they sold to the plaintiffs in 1985. The trial judge ruled that the count of each complaint seeking rescission of the purchase pursuant to section 13 of the Illinois Securities Law of 1953 (the Act) (Ill.Rev.Stat.1989, ch. 121 1/2, par. 137.13) was barred by the applicable statute of limitations (Ill.Rev.Stat.1989, ch. 121 1/2, par. 137.13). After obtaining the voluntary dismissal of the remaining counts of their complaints, the plaintiffs brought this appeal.

The plaintiffs argue that the trial court erred in holding that their claims for rescission were time-barred. Specifically, they assert that the claims were timely because they were filed within five years of January 1, 1986, the effective date of the current limitation provision. We find this argument contrary to the plain language and intent of the statute of limitations (which is also a statute of repose). We therefore affirm the trial court's dismissal of the rescission counts of the complaints.

On October 11, 1990, the Reins and Millers filed an eight-count complaint (essentially two, four-count complaints tacked together) against Noyes and Rath. Counts I and V alleged that the plaintiffs were customers of Noyes, a securities dealer for whom Rath was a salesman, and that "during the year 1985," at the defendants' urging, the plaintiffs bought and paid for certain securities known as "City of Richmond, Indiana Economic Development Revenue Bonds" (Richmond bonds) and dated June 20, 1985. They also alleged that, in violation of sections 12 F and 12 G of the Act (Ill.Rev.Stat.1989, ch. 121 1/2, pars. 137.12 F, G), the defendants willfully, fraudulently, and deceitfully caused the plaintiffs to believe that these bonds were municipal bonds and not actually high-risk investments in a private hotel project on which the City of Richmond was not liable to pay interest or principal. The plaintiffs claim they were entitled to rescind the purchases pursuant to section 13 of the Act, giving notice of their intent to rescind within six months of having obtained knowledge that the sale was voidable.

Counts II and VI of the Rein-Miller complaint sought recovery under a theory of common-law fraud and the defendants' failure to register the securities as required by the Act. Counts III and VII sought punitive damages. Counts IV and VIII asserted that the defendants breached their fiduciary duty to the plaintiffs. Counts II through VIII were based on the same factual allegations as count I. However, count II asserted that the sale of the securities to the Reins took place on or about October 30, 1985. Count VI asserted that the sale to the Millers took place on or about June 20, 1985.

On December 27, 1990, Lorraine Fehrmann filed a four-count complaint against Noyes and its agent Ronald Ainsworth, based on similar allegations that "during the year 1985," the defendants willfully and fraudulently induced her to purchase the Richmond bonds. The first count of Fehrmann's complaint, styled "Count IX," sought rescission under the same theory as the Miller-Rein complaint. Count X asserted that the sale of the securities to Fehrmann took place on October 29, 1985. In all respects, the legal basis of each of the four counts of the Fehrmann complaint was the same as that of the analogous counts of the Miller-Rein complaint.

The defendants moved pursuant to section 2-619(a)(5) of the Code of Civil Procedure (Ill.Rev.Stat.1989, ch. 110, par. 2-619(a)(5)) to dismiss the rescission counts of the complaints (counts I, V, and IX) as barred by the applicable statute of limitations:

"No action shall be brought for relief under this Section * * * after 3 years from the date of sale; provided, that if the party bringing the action neither knew nor in the exercise of reasonable diligence should have known of any alleged violation of subsection E, F, G, H, I, or J of Section 12 of this Act which is the basis for the action, the 3 year period provided herein shall begin to run upon the earlier of

(1) the date upon which the party bringing such action has actual knowledge of the alleged violation of this Act; or

(2) the date upon which the party bringing such action has notice of facts which in the exercise of reasonable diligence would lead to actual knowledge of the alleged violation of this Act; but in no event shall the period of limitation so extended be more than 2 years beyond the expiration of the 3 year period otherwise applicable." Ill.Rev.Stat.1989, ch. 121 1/2, par. 137.13 D.

The trial judge agreed that the rescission counts were barred by this provision, finding specifically that the suits were brought more than five years after the sale, the outer limit of the limitation provision. The trial court refused to certify that there was no just reason to delay enforcement or appeal of the dismissal of the counts (see 134 Ill.2d R. 304(a)). The plaintiffs obtained a valid voluntary dismissal of the remaining counts of their complaints (see Ill.Rev.Stat.1989, ch. 110, par. 2-1009) and brought this appeal.

Initially we note that we have jurisdiction to hear this appeal. Although the dismissal of the rescission counts was not at the time appealable, the voluntary dismissal of the remaining counts left nothing pending before the trial court. The dismissal of the rescission counts with prejudice thus became final and appealable as of the date of the voluntary dismissal of the remaining counts of the complaints (134 Ill.2d R. 301). The plaintiffs appealed timely, and we may reach the merits of their appeal.

The plaintiffs acknowledge that their complaints were not filed within three years of the allegedly fraudulent sales. They also acknowledge that the rescission counts contain no well-pleaded allegations that the defendants fraudulently concealed the plaintiffs' cause of action. The plaintiffs also do not invoke the discovery rule that would delay the running of the three-year period of limitations under section 13 D of the Act. Furthermore, it does not appear that the plaintiffs take issue with the trial court's factual finding that their suits were filed more than five years after the allegedly fraudulent sales.

Notwithstanding all of these considerations, the plaintiffs maintain that under Mega v. Holy Cross Hospital (1986), 111 Ill.2d 416, 95 Ill.Dec. 812, 490 N.E.2d 665, and Costello v. Unarco Industries, Inc. (1986), 111 Ill.2d 476, 95 Ill.Dec. 822, 490 N.E.2d 675, the stricken counts were timely because they were filed within five years of the effective date of the present statute of limitations. We find this argument without merit.

Under the previous statute of limitations, the plaintiffs' actions for rescission clearly would have been barred. This is because the prior statute flatly stated that "[n]o action shall be brought for relief under this Section * * * after 3 years from the date of sale." (Ill.Rev.Stat.1985, ch. 121 1/2, par. 137.13 D.) As both the language of the new statute and the accompanying interpretive comments make clear, the effect of the new statute is to lengthen the time in which such a suit may be filed, provided that plaintiffs properly allege and demonstrate the requisite grounds. The amendments "lengthen the statute of limitations for actions involving fraudulent activities by an equitable tolling of up to an additional two years." (Emphasis added.) (Ill.Ann.Stat., ch. 121 1/2, par. 137.13, Interpretive Comments, at 127 (Smith-Hurd Supp.1991).) "This tolling amendment was designed to particularly cover cases of fraudulent concealment or so-called 'lulling' activities by promoters. Heretofore, the three-year statute of limitations could be an absolute bar to an action even if discovery was not reasonable or subverted." Ill.Ann.Stat., ch. 121 1/2, par. 137.13, Interpretive Comments, at 128 (Smith-Hurd Supp.1991).

The limitations statute also operates as a statute of repose, barring all claims ...