Zahl v. Krupa

• Decision Date: 31 May 2006
• Docket Number: No. 2-05-0919.,2-05-0919.
• Citation: 850 N.E.2d 304
• Parties: Jacqueline ZAHL, Gene Krupa, and Lynn Krupa, Plaintiffs-Appellants, v. Ronald A. KRUPA, Individually, Defendant (Jones and Brown Company, Inc., and John G. Creighton, Thomas Kulakowski, Ronald A. Krupa, John Creighton, Larry Wright, Ross Boehmer, Terry Mooney, Patricia M. Dell'Aquila, Marysue Brown, Ron Krol, and Steven Brown, as Directors and Officers of Jones and Brown Company, Inc., Defendants-Appellees).
• Court: United States Appellate Court of Illinois

850 N.E.2d 304

Jacqueline ZAHL, Gene Krupa, and Lynn Krupa, Plaintiffs-Appellants, v. Ronald A. KRUPA, Individually, Defendant (Jones and Brown Company, Inc., and John G. Creighton, Thomas Kulakowski, Ronald A. Krupa, John Creighton, Larry Wright, Ross Boehmer, Terry Mooney, Patricia M. Dell'Aquila, Marysue Brown, Ron Krol, and Steven Brown, as Directors and Officers of Jones and Brown Company, Inc., Defendants-Appellees).

No. 2-05-0919.

Appellate Court of Illinois, Second District.

May 31, 2006.

COPYRIGHT MATERIAL OMITTED

Michael S. Loeffler, J. Aaron Jensen, Meckler, Bulger & Tilson LLP, Chicago, for Gene Krupa, Lynn Krupa, Jacqueline Zahl.

Ronald A. Krupa, Lisle, pro se.

Kevin P. Brown, Maria E. Mazza, Rieck & Crotty, P.C., Chicago, for Ross Boehmer, Marysue Brown, Steven Brown, John G. Creighton, Patricia M. Dell'Aquila, Directors & Officers of Jones & Brown Company, Inc., Jones & Brown Company, Inc. Ron Krol, Thomas Kulakowski, Terry Mooney, Larry Wright.

Justice O'MALLEY delivered the opinion of the court:

Plaintiffs, Jacqueline Zahl, Gene Krupa, and Lynn Krupa, appeal the judgment of the circuit court of Du Page County dismissing their claims against defendants, Jones & Brown Co., Inc., and its directors and officers, including its president, Ronald A. Krupa (Krupa). Plaintiffs' complaint alleges that they were swindled by Krupa, who presented an investment opportunity to them but then failed to return their money at the end of the contractual investment period. We reverse and remand.

The following are the material allegations of plaintiffs' complaint:

(A) Krupa was at all relevant times president of Jones & Brown and a member of its board of directors;

(B) Jones & Brown outfitted Krupa with an office, phone, and company letterhead to perform his duties;

(C) Krupa, acting "in his capacity as [Jones & Brown's] President" and as the "agent or apparent agent" of Jones & Brown and its board of directors, represented to plaintiffs that "he was authorized to take [plaintiffs' money] and invest it in his name in the investment fund at [Jones & Brown]" called the "Scudder Fund," which was "open to high ranking executives of [Jones & Brown], such as himself, for such investing for himself and for others, including his friends and family, in his name, and was backed by the full faith and financial strength of [Jones & Brown] and its insurers";

(D) Krupa, acting "in his capacity as [Jones & Brown's] President" and as the "agent or apparent agent" of Jones & Brown and its board of directors, represented to plaintiffs "on multiple occasions" that they "could avail [themselves] of [Jones & Brown's] investment fund" and "that he had invested money from other friends and family of his in like fashion, that other directors and officers of [Jones & Brown] made like investments of their friends' and families' money in [Jones & Brown's] investment fund, that making such investment of directors' and officers' own money as well as that of their friends and family was a perk available only to [Jones & Brown's] directors and officers, and that [Jones & Brown] encouraged its directors and officers to invest their friends' and families' money in the fund";

(E) Krupa, acting "in his capacity as [Jones & Brown's] President" and as the "agent or apparent agent" of Jones & Brown and its board of directors, "had previously made such representations to [plaintiffs], had entered into prior contracts with [them] for investment of [their] money in the investment fund at [Jones & Brown], and had repaid to [them] such investments with interest"; and

(F) Plaintiffs, based on their prior experiences, "continued to rely on the representations [Krupa] made to [them] * * *, due to his long-standing employment with [Jones & Brown] of more than 20 years and [their] knowledge that he was president of [Jones & Brown] and enjoyed a variety of perks due to his position and regarding his ability to invest [their] money in [Jones & Brown's] investment fund, his guarantee on behalf of himself and [Jones & Brown] that [their] investment would be repaid in full with interest, and his capacity as President of [Jones & Brown] in making such representations."

Plaintiffs attached to their complaint two agreements handwritten on Jones & Brown letterhead. The first agreement, dated December 28, 2002, reads:

"This letter shall act as the basis of the following agreement between Jacqueline Zahl and Ron Krupa.

Effective 1-1-03, I[,] Ron Krupa (President of Jones and Brown)[,] agrees [sic] to invest $160,000 of Jacqueline Zahl's money into a [sic] investment fund at Jones and Brown.

This is a Scudder Fund only available to members of Jones & Brown's board of directors. The investment will be for a period of seven months yielding a guarantee [sic] net rate of return in the amount of 11.1%.

Thus, Jacqueline's investment [of] $160,000 cash effective 1-1-03 at 11.1% thru 7-31-03 equals a full investment return of $177,760 less processing fees.

Jones and Brown fully guarantees this investment."

The note is signed by Krupa and plaintiff Jacqueline Zahn.

The second note is dated May 31, 2003, and provides:

"I[,] Ron Krupa[,] President of Jones and Brown[,] agrees [sic] to invest $100,000 of Gene and Lynn Krupa's money at a rate of 11.1% for a period of 10 months. Thru a Scudder investment fund available only to Jones and Brown['s] Board of Directors.

The net return available 4-01-04 will be $111,100 less processing fees. This money is guaranteed by Jones and Brown."

The note is signed by Krupa and plaintiffs Gene Krupa and Lynn Krupa.

Plaintiffs alleged that, when the contractual investment period was over, they asked Krupa to return their money with the contractual interest. Krupa told them that there was no Scudder investment fund at Jones & Brown¹ and that he had lost all of their money through investing in the stock market. Krupa later told plaintiffs that he lost their money through gambling.

Plaintiffs brought causes of action against defendants for breach of contract (premised on actual and/or apparent authority), fraud (premised on actual and/or apparent authority), negligent hiring, negligent supervision, and negligent retention.²

Defendants moved to dismiss the claims under section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 2004)). Defendants argued that plaintiffs' claims were barred by the doctrine of unclean hands because, according to the written agreements attached to plaintiffs' complaint, the Scudder fund was available only to members of Jones & Brown's board of directors. Defendants reasoned that plaintiffs cannot claim wrongdoing with respect to agreements that Jones & Brown's policies did not allow them to make in the first place. Defendants argued in the alternative that plaintiffs failed to plead facts showing that Krupa acted as the actual or apparent agent of defendants in depriving plaintiffs of their money. The trial court accepted both arguments. The court found that plaintiffs' claims were defeated by the doctrine of unclean hands because the written contracts signed by plaintiffs and Krupa recite that the Scudder fund was available only to members of Jones & Brown's board of directors, a criterion that plaintiffs admittedly did not meet. The court further found that plaintiffs' allegations of actual or apparent authority were inadequately pleaded, resting entirely on the allegation that Jones & Brown and its board of directors "provided Mr. Krupa with an office, a telephone, and letterhead." The court also noted that the written agreements contain no indication that Krupa was acting on behalf of defendants when he signed them. The court dismissed plaintiffs' claims against defendants, and plaintiffs filed this timely appeal.

Although styled as a motion brought under section 2-619, defendants' motion actually combines features of a section 2-619 motion and a motion under section 2-615 of the Code (735 ILCS 5/2-615 (West 2004)). Section 2-619.1 of the Code (735 ILCS 5/2-619.1 (West 2004)) permits such combined motions. Sections 2-615 and 2-619 allow for dismissal under different legal theories. Van Duyn v. Smith, 173 Ill.App.3d 523, 528, 123 Ill.Dec. 367, 527 N.E.2d 1005 (1988). A section 2-615 motion attacks the legal sufficiency of the plaintiff's claims, while a section 2-619 motion admits the legal sufficiency of the claims but raises defects, defenses, or other affirmative matter, appearing on the face of the complaint or established by external submissions, that defeat the action. Northern Trust Co. v. County of Lake, 353 Ill.App.3d 268, 278, 288 Ill.Dec. 701, 818 N.E.2d 389 (2004). In arguing that plaintiffs failed to establish that Krupa acted with actual or apparent authority, defendants attack the legal sufficiency of plaintiffs' claims. See Malanowski v. Jabamoni, 293 Ill.App.3d 720, 726-27, 228 Ill.Dec. 34, 688 N.E.2d 732 (1997) (setting forth elements of cause of action based on apparent agency). In asserting that plaintiffs have unclean hands, however, defendants admit the legal sufficiency of plaintiffs' claims but raise an affirmative defense. See Long v. Kemper Life Insurance Co., 196 Ill.App.3d 216, 218-19, 142 Ill.Dec. 925, 553 N.E.2d 439 (1990) (unclean hands is an affirmative defense).

The question presented on review of a motion to dismiss pursuant to section 2-615 is whether the complaint contains sufficient facts that, if established, would entitle the plaintiff to relief. Illinois Graphics Co. v. Nickum, 159 Ill.2d 469, 488, 203 Ill.Dec. 463, 639 N.E.2d 1282 (1994). Where a claim has been dismissed pursuant to section 2-619, however, the question is whether there is a genuine issue of material fact and whether the defendant is entitled to judgment as a matter of law. Illinois Graphics Co., 159 Ill.2d at 494, 203 Ill.Dec. 463, 639 N.E.2d 1282. When reviewing a trial court's disposition of a motion to dismiss filed under either section 2-615 or section 2-619,...