Opinion filed April 5, 2017 _____________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

2017

EMIL BENZAKRY and EMIL AND SON, ) Appeal from the Circuit Court LLC, ) of the 14th Judicial Circuit, ) Whiteside County, Illinois. Plaintiffs-Appellees and ) Cross-Appellants, ) ) Appeal No. 3-16-0162 v. ) Circuit No. 07LM128

)

PARESH PATEL and KALPITA PATEL, )

) The Honorable Defendants-Appellants and ) John L. Hauptman, Cross-Appellees. ) Judge, presiding. _____________________________________________________________________________

JUSTICE McDADE delivered the judgment of the court, with opinion.

Presiding Justice Holdridge and Justice Schmidt concurred in the judgment and opinion.

_____________________________________________________________________________

OPINION

¶1 Plaintiff Emil Benzakry, through his company Emil & Son, LLC, entered into a purchase

agreement with defendants Paresh and Kalpita Patel, through their company KAP Family

Investments, LLC, to purchase a gas station in Rock Falls, Illinois. The gas station closed, and

Benzakry sued for damages. A judgment was entered in favor of Benzakry. Defendants appealed,

arguing (1) a claim for veil piercing cannot be tried before a jury, (2) the trial court abused its

discretion by allowing the introduction of bank statements without proper foundation, (3) plaintiffs cannot prove fraud because Paresh did not proximately cause Benzakry’s damages,

(4) plaintiffs cannot prove fraud because Benzakry did not justifiably rely on Paresh’s alleged

misrepresentations, and (5) the corporate veil judgment against Kalpita was against the manifest

weight of the evidence. Benzakry cross-appealed, arguing (1) the trial court’s grant of

defendant’s motion for a directed verdict was error because plaintiffs are allowed to sue under

the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act or Act) (815

ILCS 505/1 et seq. (West 2006)) and (2) the trial court’s denial of plaintiffs’ motion to amend a

complaint to conform the pleadings to the proofs was error because there was evidence of a

principal-agent relationship. We affirm in part and reverse in part, and the cause is remanded for

further proceedings.

¶2 FACTS

¶3 The following facts are undisputed. Plaintiff Benzakry owned multiple businesses in

California throughout his career. In 2005, Benzakry sold his last business and started looking on

LoopNet 1 for investments to assist him with his living expenses during his retirement. Benzakry

came across an advertisement on the LoopNet site that stated the following:

“*********TRIPLE NNN LEASE[2]**********GAS

STATION LOCATED IN ROCK FALLS, IL*******Please call

for actual location************ Located on a Major exit on the

State Highway. Surrounded by Fast Food restaurants like

McDonald’s, Arby’s[,] Burger King, Subway. 1 Million Gallon

1 Benzakry testified that LoopNet is “an Internet, commercial Internet, it sells, all sorts of commercials with caps, which is like you can buy McDonald or you can buy a dollar, Family Dollar, or they, they don’t own their buildings, what they, they really do is that they pay you rent. You buy them, then you, you pay rent.” 2 Benzakry testified that NNN lease means “you do nothing. You sit at home and collect money. That’s called an armchair investment.”

2

plus annual sale!!!!!!!!!! $300,000 inside C-store sales!!!!! EPA

CLEAN PHASE I conducted!!!!!! 13% CAP RATE!!!!!”

¶4 “K. Patel” was listed in the advertisement as the contact person for inquires, and after

several months, Benzakry called the phone number listed. In January 2007, David Levin, a

realtor, e-mailed Paresh the following information:

“I just visited with Emil and he has just some basic

questions which he is going to write up and send to me. I will

forward to you for your response. The one that has him more

worried about any is this:

Who is Singh & Singh LLC? We see no evidence of a

personal guarantee so if the businesses goes bad, what leverage

does the owner of the Fee have? They seem to have taken your

word that everything is good. Some history on the Tenant will be

relevant.

He would feel more comfortable with a Personal Guarantee

and some history of who this gentleman or gentlemen are.”

Paresh responded with Benzakry copied on the e-mail, stating:

“Singh & Singh LLC is owned by the former manager of

my gas station. He has over 10 years of experience in managing

gas stations. He was operating the Rock Falls, IL[,] gas station ever

since I bought it in 2005. He also managed my other store in

Le Claire, IA and in Chicago. I personally know him for the last 8

3

years. Since I knew him personally, I did not ask for a Personal

Guarantee on the rental payments in the purchase agreement.”

Benzakry received a copy of the lease agreement between Singh & Singh, LLC, and KAP 3 and

of the Singhs’ personal financial statements for his review. On January 12, 2007, Benzakry,

through his company Emil & Son, entered into a purchase agreement and addendum for the Rock

Falls gas station for $521,500. Benzakry was to receive $6000 per month in rent.

¶5 On January 24, Benzakry e-mailed Paresh with questions regarding the purchase of the

gas station, and Paresh responded, providing his answers below Benzakry’s questions:

“1) who is SING & SING LLC. SINGH & SINGH, LLC is

the Tenant of KAP Family Investments, LLC (my corporation).

KAP Family Investments, LLC owns the Land, & Building at

Rock Falls, IL and SINGH & SINGH, LLC signed a 15 years

NNN lease to operate the Gas Station.

***

3) according to information David and I received is that

SING & SING LLC. operates another two gas stations, we have no

evidence of that. SINGH & SINGH, LLC does not operate two gas

stations. Mr. Singh was a manager of three gas stations that were

owned by me.

***

3 In December 2006, KAP (Kalpita is the registered agent and sole member of KAP) and Singh & Singh (owned by Christopher and Anita Singh) entered into a lease agreement with respect to the Rock Falls gas station.

4

5) In what capacity was Mr. sing working for you? Mr.

Singh was working as a Manager for the three gas stations that I

own.

***

7) In all leases I have ever seen, there always is a clause

mentioning, “the leasee paid first last and security deposit”, this

lease has no mention of that. As I mentioned earlier in the email

that I know Mr. Signh personally for the last 8 years and have

worked for me for the last 5 years I did not ask any security deposit

from him.

***

11) I object to have a tenant with an LLC. Unless he also

sign a personal guaranty. I can get a personal guarantee signed

from the tenant. Attached is the personal guarantee agreement.

12) Because of the above questions, and uncertainties,

which were not clear when we signed our agreement, and because

of the leasee no proof of owning other gas stations as presumed

earlier, I suggest this course of action, a) a personal guaranty to be

added, not a problem.

b) a security deposit and last moth [sic] rent to be paid, (1

month rent as security deposit and last month rent for a total of

$12,000 is reasonable).”

5

¶6 On January 26, a second addendum to the purchase agreement was executed and included

the enforcement of a personal guarantee agreement and security deposit of $12,000. The

addendum also contained a clause that stated:

“Entire Agreement. This Addenda and Agreement contain

the entire agreement between Seller and Buyer, and there are no

other terms, conditions, promises, undertakings, statements or

representations, either written or oral or expressed or implied,

concerning the sale contemplated by this agreement.” (Emphasis

added.)

¶7 In February 2007, Benzakry and KAP closed on the gas station. At the time, a guaranty

of lease agreement between KAP and Singh & Singh was signed. The agreement stated the

following:

“1. GUARANTOR jointly, severally and unconditionally

guarantees to LESSOR, its successors and assigns, the prompt

payment by TENANT of the rents reserved in said LEASE and the

performance by TENANT of all provisions and covenants

contained in said LEASE for and during the original term of said

LEASE and any renewal or renewals, extensions, modifications or

amendments thereof; and if any default shall be made by

TENANT, GUARANTOR shall pay to LESSOR, its successors or

assigns, such sum or sums of money as will be sufficient to make

up any such deficiency, and shall satisfy the provisions and

covenants by TENANT to be performed.”

6

¶8 Benzakry received rent for the months of February to April but did not receive rent for

the month of May. Benzakry called the station to address this issue, but no one answered. He

called David Levin, who went to the gas station and discovered that it was closed. Levin sent

pictures of the closed store to Benzakry that depicted an “Out of Gas” sign on the gas tanks and a

“Sorry … Closed” sign on the gas station door.

¶9 Singh & Singh entered into an agreement with Emil & Son to relinquish possession of the

gas station for failure to pay rent. After relinquishment, Benzakry came to Rock Falls, Illinois,

where he continued to operate the establishment as a gas station for about a year and a half, after

which time Benzakry turned the establishment into a retail store. 4 Ultimately, Whiteside County

seized the store due to illegal actions of the store’s manager. 5

¶ 10 On August 28, 2007, Emil & Son filed a complaint against Singh & Singh, Christopher

Singh, Anita Singh, and Jane Singh, claiming rent and damages. On April 6, 2009, Christopher

and Anita Singh and Benzakry and Emil & Son entered into a consent judgment of

nondischargability in the amount of $25,000.

¶ 11 In June 2009, Emil & Son filed an amended complaint adding KAP and Paresh as

defendants, claiming breach of contract, deceptive practices, and common-law fraud. Discovery

commenced, and the matter was set for trial on March 15, 2011.

¶ 12 Emil & Son filed a motion for default judgment against KAP in March 2011, which the

trial court granted and ordered KAP to pay $577,307.45.

4 Benzakry testified that he “tried all sorts of other things there to sell. I tried clothing ***. *** They go to Walmart to buy whatever I sell so that didn’t work out” and that “I turned it into a check Western Union—what do you call it—agency. And I turned it into a smoke shop.” 5 At trial, Benzakry was asked, “Was she dealing drugs out of that store?” and Benzakry answered, “She was.”

7

¶ 13 In February 2013, Emil & Son filed a third amended complaint adding Kalpita as a

defendant, claiming breach of contract, deceptive practices, and common-law fraud. Another

amended complaint was filed in July 2013, adding Benzakry as plaintiff.

¶ 14 At trial, Benzakry testified that the financial strength of the tenant was important in his

determination to enter into the purchase agreement. Furthermore, he testified that after he

received the Singh & Singh lease and was assured about the tenant’s ability to pay rent by

Paresh, Benzakry entered into the purchase agreement with KAP.

¶ 15 Paresh acknowledged that Benzakry was interested in a triple net lease and the financial

strength of the tenant when Benzakry inquired about the gas station. He admitted that

Christopher Singh had not operated the Rock Falls gas station since 2005, Paresh never owned a

gas station in Chicago, and Paresh had not known Christopher Singh for eight years but rather

eight months. Also, Paresh admitted that the annual sale of a million gallons of gas and $300,000

of convenience store sales were not the actual but projected figures of the gas station. Paresh

further admitted that the figures were not identified as projected in the advertisement.

¶ 16 Christopher Singh testified that Singh & Singh signed a lease to the Rock Falls gas

station with KAP in 2007. At the time, he had never managed a gas station, he had not known

Paresh for eight years, and he had not worked for Paresh for five years. When he started

managing the gas station, he was told that the rent would come out of the profits from the gas

station. After two to three months, Singh realized he was not making enough money from the gas

station to pay rent and told Paresh about the financial issues. Moreover, Singh testified that

Paresh provided him the figures listed in the financial statement given to Benzakry.

¶ 17 Kalpita testified that she and her friend Anjali Agarwel formed KAP. Kalpita could not

recall how much money she invested in KAP at the time of formation. Eventually, Kalpita

8

bought Agarwel’s share in KAP and became sole owner. She was not involved in the day-to-day

transactions of KAP: “Honestly, this is all day-to-day transactions and my manager, that would

be my husband, he used to look after all of this. I can request you ask him and he can answer you

better. I mean I have no clue because I was not involved in day-to-day transactions, no.” Kalpita

admitted that she transferred funds in the amount of $8500, $31,000, and $40,000 to her other

business, Mississippi Marketplace, transferred personal funds into an Amcore Bank account, and

transferred money to Guy Culvert, a horse trainer. When asked why payments from the Amcore

Bank account were made to the Patels’ horse trainer, Kalpita responded, “Okay. So—I don’t

know how to answer this but, if you are having multiple businesses, as a business woman, I will

rotate my money to survive, or—I just said, you know, financially you just ask Mr. Paresh

Patel[;] he will answer anything.” Also, Kalpita testified that she did not have any corporate

records because her husband maintained the records.

¶ 18 Defendants filed a motion for summary judgment as to counts III (breach of contract

against Paresh), V (common-law fraud against Paresh), IX (breach of contract against Kalpita),

and XI (common-law fraud against Kalpita), as well as a motion to dismiss counts IV (Consumer

Fraud Act claim against Paresh) and X (Consumer Fraud Act claim against Kalpita). The trial

court denied defendants’ motion to dismiss but granted defendants’ motion for summary

judgment as to counts III and IX.

¶ 19 Plaintiffs filed a fourth amended complaint that added an amended count XII, which

sought a piercing of the corporate veil and holding Kalpita personally liable for the debts of

KAP.

¶ 20 Defendants filed a motion for a directed verdict and a combined motion for judgment

notwithstanding the verdict, renewed motion for a directed verdict, and motion for new trial, all

9

of which the trial court denied. Plaintiffs filed a motion to conform the pleadings to the proofs to

add a principal-agent claim against Kalpita, which the trial court denied.

¶ 21 The jury found in favor of plaintiffs on counts V (common-law fraud) and XII (piercing

the corporate veil), awarded plaintiffs $700,000 in damages, and found Kalpita personally

responsible for the debts of KAP. This appeal followed.

¶ 22 ANALYSIS

¶ 23 I. Appeal

¶ 24 A. Corporate Veil Claim

¶ 25 Defendants first argue that the issue of piercing the corporate veil of KAP is for the court

to decide, not the jury. Also, because the jury heard the corporate veil claim, the jury was

presented substantial evidence that was completely irrelevant to the fraud claim. Thus, the

corporate veil and fraud claims should be reversed and remanded for a retrial. Plaintiffs argue

that, although Illinois courts have not addressed this issue, there are cases that support the

proposition that the issue of piercing the corporate veil is a matter for the jury to decide. In the

alternative, plaintiffs claim case law supports the proposition that courts can treat the jury’s

decision as advisory and decide whether veil piercing would be appropriate. This appears to be

an issue of first impression, as there are no Illinois cases that discuss this issue.

¶ 26 Defendants failed to preserve this issue for review. Dempsey v. Sternik,

(1986) (failure to object at the trial level constitutes a waiver unless the failure

constitutes fundamental error). The record reveals that defendants did not file a motion to sever

the corporate veil claim. In fact, the defendants conceded to the corporate veil claim being tried

before a jury when defendants’ attorney stated, “No, I mean I’m not too concerned about the

10

point, I want to make life easier.” Further, at the hearing on defendants’ combined motion,

defendants’ attorney stated, “let’s get to the veil piercing issue. Uhm, we screwed up on it. Uhm,

all three of us, I think, screwed up on the veil piercing issue. I didn’t put up much of a fight, you

got a case, all right, whatever, you got a case.” (Emphasis added.) As a result, we find that

defendants waived this issue. However, the waiver rule is a limitation on the parties and not on

the reviewing court. Dillon v. Evanston Hospital,

(2002). Because this is

an issue of first impression, we decline to follow the waiver rule and will address the merits.

¶ 27 The parties have cited various cases to assist in their arguments. Two cases that relate to

this case are FMC Finance Corp. v. Murphree,

(5th Cir. 1980), and International

Financial Services Corp. v. Chromas Technologies Canada, Inc.,

(7th Cir. 2004),

both of which address whether a corporate veil claim in a diversity case is tried before a court or

jury when applying substantive Illinois law and federal procedural law.

¶ 28 In Murphree, the Fifth Circuit determined that the issue of piercing the corporate veil is

one for the jury. Murphree,

n.5. However, the Seventh Circuit in Chromas

Technologies decided not to follow the Fifth Circuit’s decision because it found that the Fifth

Circuit’s determination lacked authority to support its assertion. Chromas Technologies,

. Instead, the Seventh Circuit found that, under Illinois law, piercing the corporate

veil is an equitable claim because the theory is only available to remove injustice or inequity, the

application of the theory is a matter of discretion, and the theory does not always result in money

damages.

. A district court must make an independent judgment as to any equitable

issue; therefore, the Seventh Circuit found that, under Illinois law, corporate veil claims are to be

determined by the court.

.

11

¶ 29 Although these cases provide guidance, they are restricted to the application of federal

procedural law. Therefore, it is important to look to Illinois substantive law and any applicable

Illinois procedural law to assist in this analysis.

¶ 30 Illinois courts have established that corporate veil claims are equitable in nature. Buckley

v. Abuzir,

(discussing Fontana v. TLD Builders, Inc.,

(2005), and noting that a corporate veil claim is an equitable remedy); Fontana,

(“ ‘[t]he doctrine of piercing the corporate veil is an equitable remedy’ ”

(quoting Peetoom v. Swanson,

(2002)), and In re Rehabilitation of

Centaur Insurance Co.,

(1992) (“[t]he doctrine of ‘piercing the

corporate veil’ is an equitable remedy” (citing Tilley v. Shippee,

(1958)).

¶ 31 Also, it is well established in Illinois that there is no right to a jury trial in equitable

claims. Lazarus v. Village of Northbrook,

(1964) (“There was then and there

is now no constitutional right of trial by jury in equity.”); Martin v. Strubel,

(1937) (“[i]n this State the guaranty of the right to a jury trial does not extend to cases of equity

jurisdiction”); Cooper v. Williams,

(1978) (“Except in certain statutorily

enumerated situations, the constitutional guaranty of a jury trial applies only to actions known to

the common law and is not a matter of right in equity proceedings.”).

¶ 32 However, in Illinois, the trial court does have discretion to direct equitable claims to be

heard by a jury. Section 2-1111 of the Code of Civil Procedure states, “The court may in its

discretion direct an issue or issues to be tried by a jury, whenever it is judged necessary in any

action seeking equitable relief.” 735 ILCS 5/2-1111 (West 2014). Our court has applied this

Illinois procedure. Kjellesvik v. Shannon,

(1976) (“the granting of a jury

trial in equity cases is discretionary with the trial court”).

12

¶ 33 Here, the record shows that the parties presented arguments on the issue of trying the

corporate veil claim before the jury. The trial court stated that it would consider the parties’

arguments and supporting case law and decide whether the claim will be heard before a jury.

Afterward, the claim was heard before the jury without objection. In light of the circumstances,

the trial court exercised its discretion to bring the corporate veil claim before the jury. Therefore,

we find the corporate veil claim was properly tried before a jury pursuant to section 2-1111.

¶ 34 B. Business Records Exception

¶ 35 Defendants argue the court abused its discretion by admitting computer-generated bank

records of an account held by KAP without foundation as required by Illinois Rule of Evidence

803(6) (eff. Apr. 26, 2012) and Illinois Supreme Court Rule 236 (eff. Aug. 1, 1992).

¶ 36 Rule 803(6) is applicable in both criminal and civil cases. It states:

“The following are not excluded by the hearsay rule, even

though the declarant is available as a witness:

***

(6) Records of Regularly Conducted Activity. A

memorandum, report, record, or data compilation, in any form, of

acts, events, conditions, opinions, or diagnoses, made at or near the

time by, or from information transmitted by, a person with

knowledge, if kept in the course of a regularly conducted business

activity, and if it was the regular practice of that business activity

to make the memorandum, report, record or data compilation ***.”

Ill. R. Evid. 803(6) (eff. Apr. 26, 2012).

13

¶ 37 Rule 236 applies exclusively to civil cases. It states:

“Any writing or record, whether in the form of any entry in a book

or otherwise, made as a memorandum or record of any act,

transaction, occurrence, or event, shall be admissible as evidence

of the act, transaction, occurrence, or event, if made in the regular

course of any business, and if it was the regular course of the

business to make such a memorandum or record at the time of such

an act, transaction, occurrence, or event or within a reasonable

time thereafter. All other circumstances of the making of the

writing or record, including lack of personal knowledge by the

entrant or maker, may be shown to affect its weight, but shall not

affect its admissibility. The term ‘business,’ as used in this rule,

includes business, profession, occupation, and calling of every

kind.” Ill. S. Ct. R. 236 (eff. Aug. 1, 1992).

¶ 38 For computer-generated records, a party must establish “ ‘the equipment which produced

the record is recognized as standard, the entries were made in the regular course of business at or

reasonably near the happening of the event recorded and the sources of information, method and

time of preparation were such as to indicate their trustworthiness and to justify their

admission.’ ” US Bank, National Ass’n v. Avdic,

(quoting Riley

v. Jones Brothers Construction Co.,

(1990)). The standard for

determining whether records are admissible as business records is abuse of discretion.

¶ 39 The business record exception requires evidence related to the document’s creation. See

Apa v. National Bank of Commerce,

(2007). In Apa, the defendant argued

14

that the plaintiff did not lay a proper foundation for a bank statement needed to meet the business

records exception.

. Noting that mere retention, without evidence of the

document’s creation, does not meet the business records exception, the First District determined

that plaintiff did not lay a proper foundation for the exception.

. Specifically, plaintiff

only testified to keeping the records in the regular course of business and did not testify to the

document’s creation.

“Without proper authentication and identification of the document, the

proponent of the evidence has not provided a proper foundation and the document cannot be

admitted into evidence.” (Internal quotation marks omitted.)

¶ 40 As in Apa, there is no evidence in the record of the instant case that shows the bank

statements were made in the regular course of business. Specifically, there is no evidence,

through testimony or affidavit, of the bank statement’s creation. Furthermore, there is no

evidence in the record, through testimony or affidavit, that shows it was regular practice for

Paresh to keep KAP’s bank statements. Therefore, plaintiffs did not meet the business records

exception requirements. See Ill. S. Ct. R. 236 (eff. Aug. 1, 1992); Apa,

.

¶ 41 In their brief, defendants mentioned a possible admission of the bank statements under

the recorded recollection exception. The requirements for the recorded recollection exception

are:

“(1) the witness had firsthand knowledge of the recorded event;

(2) the written statement was made at or near the time of the event

and while the witness had a clear and accurate memory of it;

(3) the witness lacks present recollection of the event; and (4) the

witness can vouch for the accuracy of the written statement.”

15

(Internal quotation marks omitted.) Kociscak v. Kelly,

.

See Ill. R. Evid. 803(5) (eff. Apr. 26, 2012).

¶ 42 However, for the same reasons stated above, defendant does not provide any evidence to

show that Paresh could attest to the accuracy of the bank statements. Thus, the plaintiffs did not

meet the requirements of the recorded recollection exception. See Ill. R. Evid. 803(5) (eff. Apr.

26, 2012).

¶ 43 The trial court’s error in admitting the bank statements without proper foundation will not

be overturned if the error was harmless. Lorenz v. Pledge,

(“Where a trial court abuses its discretion in admitting evidence, a reviewing court should grant a

new trial only where the error was substantially prejudicial and affected the outcome of the

case.” (Internal quotation marks omitted.)).

¶ 44 Although the bank records were relevant to the corporate veil claim, Paresh’s testimony

was cumulative. Paresh was cross-examined regarding the issue of commingling funds as

evidenced in the bank statements. Kalpita also testified to the commingling of funds seen in the

same bank statements without objection on the foundation. We believe defendants were not

prejudiced, and therefore, the trial court’s error was harmless.

¶ 45 C. Proximate Result in Fraud Claim

¶ 46 Defendants argue that plaintiffs failed to present evidence that proved plaintiffs suffered

damages as a proximate result of Paresh’s alleged misrepresentations. Plaintiffs argue that

Paresh’s misrepresentations regarding Singh & Singh’s ability to pay rent were the proximate

cause of plaintiffs’ lost rental income.

16

¶ 47 Defendants request that this court review the trial court’s denial of defendants’ motion for

summary judgment or their motion for a directed verdict. “[I]f a motion for summary judgment is

improperly denied the error is not reversible for the result becomes merged in the subsequent

trial.” Home Indemnity Co. v. Reynolds & Co.,

(1962). Therefore, only

the trial court’s denial of defendants’ motion for directed verdict will be reviewed.

¶ 48 A motion for directed verdict will not be granted unless all of the evidence so

overwhelmingly favors the movant that no contrary verdict could stand. Krywin v. Chicago

Transit Authority,

(2010). All of the evidence must be construed in the light

most favorable to the nonmoving party.

The standard of review for a motion for a directed

verdict is de novo.

¶ 49 The elements of fraudulent misrepresentation are: “(1) a false statement or omission of

material fact; (2) knowledge or belief of the falsity by the party making it; (3) intention to induce

the other party to act; (4) action by the other party in reliance on the truth of the statements; and

(5) damage to the other party resulting from such reliance.” Weidner v. Karlin,

(2010). “Proximate cause means any cause which, in natural or probable sequence,

produced the injury complained of. It need not be the sole cause or the last or nearest cause.”

Capiccioni v. Brennan Naperville, Inc.,

(2003). The trial court’s

finding on a count of fraud will not be disturbed unless it was against the manifest weight of the

evidence. Hassan v. Yusuf,

(2011).

¶ 50 Plaintiffs established proximate cause sufficiently to constitute fraud. Benzakry testified

that his purpose for purchasing the gas station was to pursue a triple net lease, which allows a

purchaser to collect rent from a tenant. Paresh made representations regarding the tenant’s

reliability and trustworthiness when he made statements to Benzakry regarding his relationship

17

with the tenant in an e-mail. Paresh acknowledged in his testimony that some of the

representations were false. Shortly after, the tenant was unable to pay the rent due to financial

problems with the gas station. In fact, Christopher Singh testified that he had actually been

having trouble paying the rent and had told Paresh about it. Benzakry lost rent profits as a direct

result of the tenant’s inability to pay the rent. Therefore, we find plaintiffs established proximate

cause to constitute fraud.

¶ 51 Also, defendants argue that the jury’s verdict was against the manifest weight of the

evidence. A jury’s findings will not be set aside unless it appears that such findings are clearly or

palpably against and contrary to the manifest weight of the evidence. Izzo v. Zera,

(1965). A verdict cannot be said to be against the manifest weight of the evidence

unless an opposite conclusion is clearly evident.

. Based on the information above,

we hold that the jury’s verdict was not against the manifest weight of the evidence.

¶ 52 D. Reliance in Fraud Claim

¶ 53 Defendants argue that plaintiffs failed to present any evidence to prove Paresh’s alleged

false statements were material or that plaintiffs justifiably relied on the alleged false statements.

Plaintiffs allege that Benzakry sought a triple net lease for the purpose of collecting rental

income and the tenant’s ability to pay was important, Paresh made representations about

Christopher Singh’s ability to pay the rent, and Benzakry relied on Paresh’s representations.

¶ 54 As stated above, one of the elements of fraudulent misrepresentation requires that the

allegedly aggrieved party justifiably relied on the statements made by the other party. Weidner,

. In determining justifiable reliance, courts consider all of the

circumstances, including “the parties’ relative knowledge of the facts available, opportunity to

18

investigate the facts and prior business experience.” Hassan,

. A party’s

reliance is justified when defendant has created a “false sense of security or blocked further

inquiry, provided that the facts were not such as to put a reasonable person on inquiry.”

Furthermore, “[I]n the absence of circumstances putting a reasonable person on inquiry, that

person is justified in relying on a representation without engaging in further inquiry, especially

where the misrepresentation concerns matters which may be assumed to be within the knowledge

of the party making them.”

. The trial court’s finding on a count of fraud will not be

disturbed unless it was against the manifest weight of the evidence.

. As stated

above, the trial court’s denial of defendants’ motion for a directed verdict will be reviewed rather

than the motion for summary judgment.

¶ 55 Plaintiffs established justifiable reliance sufficiently to constitute fraud. Benzakry

testified that his purpose for purchasing the gas station was to pursue a triple net lease, which

allowed a purchaser to collect rent from a tenant. Paresh made representations regarding the

tenant’s financial reliability and trustworthiness when he made statements regarding his

relationship with the tenant to Benzakry in an e-mail. Paresh acknowledged in his testimony that

some of the representations were false. Benzakry relied on the misrepresentations because he

testified that the reliability of the tenant was important to his decision to purchase a gas station

under a net lease. Furthermore, Benzakry testified that the sole purpose of a net lease is for the

purchaser to collect rent on the property. Therefore, we determine Benzakry justifiably relied on

Paresh’s misrepresentations.

¶ 56 Also, defendants argue that the jury’s verdict was against the manifest weight of the

evidence. A jury’s findings will not be set aside unless it appears that such findings are clearly or

palpably against and contrary to the manifest weight of the evidence. Izzo v. Zera,

263, 267 (1965). A verdict cannot be said to be against the manifest weight of the evidence

unless an opposite conclusion is clearly evident. Id. at 267-68. Based on the foregoing analysis

on this issue, we find the jury’s verdict was not against the manifest weight of the evidence.

¶ 57 Defendants further argue that plaintiffs cannot rely on any representations that are not in

the purchase agreement because plaintiffs signed a nonreliance agreement. Plaintiffs claim the

addendum is a standard merger or integration clause, not a nonreliance clause.

¶ 58 Benson v. Stafford,

(2010), provides guidance in determining

whether the parties’ agreement contained a nonreliance clause. In Benson, defendants argued that

a nonreliance clause in the parties’ agreement defeated plaintiff’s claim of reliance.

.

The clause stated, in relevant part:

“ ‘No reliance is placed on any warranty, representation, opinion,

advice or assertion of fact made either prior to, contemporaneous

with, or after entering into this Agreement, or any amendment or

supplement thereto, by any Party or its directors, officers,

employees or agents, to any other Party or its directors, officers,

employees or agents, except to the extent that the same has been

reduced to writing and included as a term of this Agreement

***.’ ” (Emphasis added.)

.

¶ 59 The First District ruled that the language in the agreement constituted a nonreliance

clause. The court distinguished Zimmerman v. Northfield Real Estate, Inc.,

(1986), noting that the clause in Zimmerman did not contain nonreliance language that existed in

the Benson case. Benson,

; Zimmerman,

(“neither

the Seller, broker nor any of their agents have made representations with respect to any material

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fact relating to the real estate, its improvements and included personal property unless such

representations are in writing”). The court found, inter alia, that language describing a party’s

agreement not to rely on any representations determined the existence of a nonreliance clause.

Benson,

. In other words, Benson held that a nonreliance clause requires

inclusion of specific nonreliance language.

¶ 60 In this case, there was no nonreliance language in the clause contained in the parties’

sales agreement. In fact, there is no mention of the word “reliance” or any associated term in the

clause. Thus, there is no nonreliance clause in the agreement. Accordingly, we hold the parties’

agreement does not defeat plaintiffs’ fraud claim.

¶ 61 E. Corporate Veil Judgment Against Kalpita Patel

¶ 62 Defendants argue plaintiffs provided no evidence to justify piercing the corporate veil of

KAP and holding Kalpita personally liable for KAP’s default judgment.

¶ 63 A jury’s findings will not be set aside unless it appears that such findings are clearly or

palpably against and contrary to the manifest weight of the evidence. Izzo v. Zera,

(1965). A verdict cannot be said to be against the manifest weight of the evidence

unless an opposite conclusion is clearly evident.

.

¶ 64 A corporation exists separate and distinct from its shareholders, directors, and officers.

Jacobson v. Buffalo Rock Shooters Supply, Inc.,

(1996). Generally,

the shareholders, directors, and officers are not liable for the corporation’s obligations.

The

requirements for piercing the corporate veil and holding a shareholder responsible for the

corporation’s obligations are “(1) a unity of interest and ownership that causes the separate

personalities of the corporation and the individual to no longer exist; and (2) the presence of

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circumstances under which adherence to the fiction of a separate corporate existence would

sanction a fraud, promote injustice or promote inequitable consequences.”

¶ 65 “Courts are reluctant to pierce the corporate veil.”

Accordingly, a party seeking to

pierce the corporate veil has the burden to make a substantial showing that the shareholder is not

acting separately and distinctly from the corporation.

Courts look at various factors in

determining whether to pierce the corporate veil, including inadequate capitalization, failure to

issue stock, failure to observe corporate formalities, nonpayment of dividends, insolvency of the

debtor corporation, nonfunctioning of the other officers or directors, absence of corporate

records, commingling of funds, diversion of assets from the corporation by or to a shareholder,

failure to maintain arm’s length relationships among related entities, and whether the corporation

is a mere facade for the operation of the dominant shareholders.

¶ 66 The record discloses that KAP had inadequate capitalization. Singh & Singh signed a

lease with KAP in December 2006. By March 2007, KAP was having financial issues because it

had made several insufficient fund transactions and the Patels were transferring money into the

KAP account, including $17,000 of Paresh’s money to KAP in April 2007. It is inequitable for

shareholders to establish and maintain a corporation that carries on business without sufficient

assets available to meet its debt. See Stap v. Chicago Aces Tennis Team, Inc.,

(1978) (citing Henry Winthrop Ballantine, Ballantine on Corporations 302-03 (rev. ed.

1946)).

¶ 67 Also, the record shows that Kalpita was a nonfunctioning shareholder. Specifically,

Kalpita was the sole member of KAP, but her testimony indicates that she was not involved with

the activities of KAP. Kalpita testified that she trusted her husband to handle the finances in the

business. When asked about the Amcore Bank statements, Kalpita responded, “Honestly, this is

22

all day-to-day transaction and my manager, that would be my husband, he used to look after all

of this. I can request you ask him and he can answer you better. I mean I have no clue because I

was not involved in day-to-day transaction, so.”

¶ 68 Lastly, the record shows Kalpita commingled funds. Transactions in the bank statements

show money being transferred to the Patels’ horse farm. When asked, “Do you know why the gas

station account was paying the horse trainer?” Kalpita responded, “Okay. So—I don’t know how

to answer this but, if you are having multiple businesses, as a businesswoman I will rotate my

money to survive, or—I just said, you know, financially you just ask Mr. Paresh Patel[;] he will

answer anything.” There were also funds in the amount of $8500, $40,000, and $31,000

transferred between the KAP account and the Patels’ other gas station in Le Claire, Iowa, where

Kalpita was the sole shareholder.

¶ 69 Based on this information, we determine the jury’s verdict, piercing KAP’s corporate veil

and holding Kalpita liable for KAP’s damages, was not against the manifest weight of the

evidence.

¶ 70 II. Cross-Appeal

¶ 71 A. Consumer Fraud Act Counts

¶ 72 Plaintiffs argue that the trial court erred when it granted defendants’ motion for a directed

verdict as to counts IV (Consumer Fraud Act claim against Paresh) and X (Consumer Fraud Act

claim against Kalpita). Specifically, plaintiffs claim that they do not have to prove a

misrepresentation involves trade practices addressed to the market generally as once implicated

in case law because the 1990 amendment to section 10(a) of the Consumer Fraud Act (Pub. Act

86-801, § 1 (eff. Jan. 1, 1990) (amending 815 ILCS 505/10a (West 1990)) states “proof of public

23

injury, a pattern, or an effect on consumers generally shall not be required.” (Emphasis added.)

Pub. Act 86-801, § 1 (eff. Jan. 1, 1990).

¶ 73 The parties dispute whether a misrepresentation must involve trade practices addressed to

the market generally pursuant to section 10a of the Consumer Fraud Act. 815 ILCS 505/10a

(West 2006). This is an issue of statutory interpretation and is reviewed de novo. Landis v. Marc

Realty, L.L.C.,

(2009).

¶ 74 The fundamental rule of statutory interpretation is to ascertain and give effect to the

intent of the legislature. Ryan v. Board of Trustees of the General Assembly Retirement System,

(2010). The most reliable indicator of that intent is the language of the

statute itself.

In determining the plain meaning of statutory language, a court will consider the

statute in its entirety, the subject the statute addresses, and the apparent intent of the legislature in

enacting the statute. Blum v. Koster,

(2009). If the statutory language is clear

and unambiguous, it must be applied as written, without resorting to further aids of statutory

interpretation. Hendricks v. Board of Trustees of the Police Pension Fund,

.

¶ 75 Section 10a states:

“Any person who suffers actual damage as a result of a violation of

this Act committed by any other person may bring an action

against such person. The court, in its discretion may award actual

economic damages or any other relief which the court deems

proper; provided, however, that no award of punitive damages may

be assessed under this Section against a party defendant who is a

new vehicle dealer or used vehicle dealer within the meaning of

24

Chapter 5 of the Illinois Vehicle Code or who is the holder of a

retail installment contract within the meaning of Section 2.12 of

the Motor Vehicle Retail Installment Sales Act, unless the conduct

engaged in was willful or intentional and done with evil motive or

reckless indifference to the rights of others. Proof of a public

injury, a pattern, or an effect on consumers and the public interest

generally shall be required in order to state a cause of action

under this Section against a party defendant who is a new vehicle

dealer or used vehicle dealer within the meaning of Chapter 5 of

the Illinois Vehicle Code or who is the holder of a retail installment

contract within the meaning of Section 2.12 of the Motor Vehicle

Retail Installment Sales Act.” (Emphasis added.) 815 ILCS

505/10a (West 2006).

¶ 76 The statement “[p]roof of a public injury, a pattern, or an effect on consumers generally

shall not be required” was added to the statute through Public Act 86-801 (eff. Jan. 1, 1990), but

the legislature removed the word “not” in Public Act 89-144 (eff. Jan. 1, 1996) and made “proof

of a public injury, a pattern, or an effect on consumers and the public interest generally” required

in cases against new or used vehicle dealers.

¶ 77 It seems that when the language was moved, the legislature did not intend to require that

a party show proof of public injury generally but added the language further in the paragraph to

place emphasis on the requirement to show public injury only in cases against a defendant who is

a new or used vehicle dealer. See Grimaldi v. Webb,

(1996) (“This

amendment is clearly a change in the law, not a mere clarification, as it is specifically carving

25

out actions against vehicle dealers from the rule that proof of public injury or a pattern is not

required.”). To insinuate that the legislature now placed a general requirement to show proof of

public injury would be departing from the language of the statute, which cannot be done. See

Ryan v. Board of Trustees of the General Assembly Retirement System,

(2010) (“[w]here the statutory language is clear and unambiguous, we will enforce it as written

and will not read into it exceptions, conditions, or limitations that the legislature did not

express”). Therefore, we find the 1996 amendment did not change the meaning of section 10a,

and thus, no public injury needs to be proven.

¶ 78 Regardless, we note that there is evidence of public injury because Paresh misrepresented

the gasoline and convenience store sales in the advertisement. Paresh placed an advertisement for

the purchase of a triple net lease for the gas station on a website accessed by the general public.

At trial, Paresh admitted that the annual sale of a million gallons of gas and $300,000 of

convenience store sales stated in the advertisement were not actual but projected figures and that

he did not disclose that the figures were projected in the advertisement.

¶ 79 Also, defendants argue that plaintiffs cannot bring a suit under the Consumer Fraud Act

because defendants do not meet the statutory definitions of “merchandise” and “consumer” under

the Consumer Fraud Act.

¶ 80 The Consumer Fraud Act allows purchasers of real estate to bring a claim before the

court. In Beard v. Gress,

(1980), the Fourth District addressed the issue

of whether a domestic purchaser of real estate had standing to sue under the Consumer Fraud

Act. The court stated that prior to 1973, section 2 of the Consumer Fraud Act was limited to the

sale and advertisement of merchandise.

However, after 1973, the General Assembly added

the words “trade” and “commerce” to the Act, which broaden the protection “beyond matters

26

connected with the sale or advertisement of merchandise to the conduct of any trade or

commerce.”

Furthermore, the Act added the word “businessman,” which created an

additional protected group. Because of this, the Fourth District concluded that section 2 also

protected purchasers of real estate to sue for violations even though they do not meet the

definition of “consumer” under the Consumer Fraud Act. “Any other interpretation would give

the obviously unintended result of protecting businessmen who purchase real estate but giving no

such protection to other citizens who do so.” Thus, we hold plaintiffs can bring a claim against

defendants under the Consumer Fraud Act without meeting statutory definitions of

“merchandise” and “consumer.”

¶ 81 Next, we determine whether plaintiffs are entitled to judgment under the Consumer Fraud

Act. Section 2 of the Consumer Fraud Act states unfair or deceptive acts or practices, including

fraud and misrepresentation, are a violation of the Act. 815 ILCS 505/2 (West 2006). To prove

deceptive acts or practices, a party must show “(1) a deceptive act or practice by the defendant,

(2) the defendant’s intent that plaintiff rely on the deception, (3) the occurrence of the deception

during a course of conduct involving trade or commerce, (4) actual damage to the plaintiff [and]

(5) proximately caused by the deception.” Ramirez v. Smart Corp.,

(2007) (citing Avery v. State Farm Mutual Automobile Insurance Co.,

(2005)).

¶ 82 We believe defendants engaged in deceptive acts when they knowingly misrepresented

information in their advertisement and in their e-mails to Benzakry as stated in detail above. See

Siegel v. Levy Organization Development Co.,

(1992) (“it is unquestionable

that so long as the alleged deception occurred in a course of conduct involving trade or

commerce, facts satisfying a claim for common law fraud will necessarily satisfy a claim under

27

the [Consumer Fraud] Act”). Therefore, we grant judgment on counts IV and X in favor of

plaintiffs and against defendants. Plaintiffs request that this claim be remanded for the sole

purpose of assessing attorney fees. Section 10a of the Consumer Fraud Act grants the trial court

discretion to award damages that the court deems proper. 815 ILCS 505/10a (West 2006).

Because plaintiffs are eligible for attorney fees, the trial court has the discretion to award

attorney fees on remand.

¶ 83 B. Motion to Conform Pleadings to the Proofs

¶ 84 Plaintiffs argue that the trial court erred when it denied their motion to amend the

complaint to conform the pleadings to the proofs. In their motion, plaintiffs alleged that Kalpita

was the sole member of KAP and that her husband, Paresh, acted as her agent.

¶ 85 Section 2-616(c) states: “A pleading may be amended at any time, before or after

judgment, to conform the pleadings to the proofs, upon terms as to costs and continuance that

may be just.” 735 ILCS 5/2-616(c) (West 2006). The test is “whether the allowance of the

amendment furthers the ends of justice.” American National Bank & Trust Co. of Chicago v.

Dozoryst,

(1993). This includes whether “the amendments alter[ed] the

nature of proof required to defend” and whether “the other party would be prejudiced or

surprised.”

. “Any doubt as to whether pleadings should be amended should be resolved

in favor of an amendment.”

The standard of review is abuse of discretion. Cirro Wrecking

Co. v. Roppolo,

(1992).

¶ 86 Here, the record shows evidence of a principal-agent relationship. “Under the doctrine of

respondeat superior, a principal may be held liable for the negligent actions of an agent that

caused a plaintiff’s injury, even if the principal does not himself engage in any conduct in

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relation to the plaintiff.” Sperl v. C.H. Robinson Worldwide, Inc.,

(2011). Kalpita became the sole member of KAP after buying all the company shares, and Paresh

became the sole manager. At various points in her testimony, Kalpita testified that she could not

answer certain questions because Paresh kept the business records and handled the day-to-day

transactions of the business. Her testimony indicates that she heavily and almost exclusively

relied on Paresh to maintain KAP. Based on this information, amending the pleadings would not

alter the nature of evidence required to defend the principal-agent claim.

¶ 87 Furthermore, defendants were not prejudiced or surprised by plaintiffs’ principal-agent

claim. In fact, plaintiffs included a principal-agent relationship allegation in their fourth amended

complaint. In the complaint, under amended count XII, it states:

“23. At all times material hereto Defendant Kalpita was

either a co-member or the sole member of KAP Family

Investments, Inc.

24. As such, she delegated the authority to act on KAP’s

behalf to Paresh Patel who acted on behalf of the LLC.” (Emphasis

added.)

Because defendants were aware of this count, they would not be prejudiced or surprised if the

pleadings were amended. Therefore, we determine the trial court erred when it denied plaintiffs’

motion to conform pleadings to the proofs.

¶ 88 Turning to plaintiffs’ request for judgment, we found the record reveals evidence of a

principal-agent relationship between Paresh and Kalpita. As stated previously, Kalpita had little

involvement with her own business because she trusted her husband to handle the finances in the

business, allowed her husband to do all the day-to-day transactions, and allowed him to possess

29

and maintain all the business records. Therefore, we grant judgment in favor of plaintiffs and

against defendants on the principal-agent claim.

¶ 89 Defendants argue that plaintiffs’ principal-agent relationship claim is time-barred by the

statute of limitations for common-law fraud. However, as plaintiffs have argued, Kalpita’s

bankruptcy case tolled the fraud claim during the five-year limitations period. In fact,

defendants’ attorney conceded to the tolling, stating: “To save some time, he is right on the

bankruptcy tolling thing. So the statute of limitations argument he is right on.” Because of

defendants’ attorney’s comment, the trial court excluded the statute of limitations argument from

its ruling: “With regard to the Motion to Conform The Pleadings To The Proofs, uhm, with the

exception of the argument that the statute of limitations has expired, because Mr. Loftus

conceded that argument, with that exception I find more compelling the written and oral

arguments made by defense, and accordingly the motion, that post-trial motion is also denied.”

(Emphasis added.) Thus, defendant’s argument fails on this issue.

¶ 90 The record is unclear, and the parties have not briefed, regarding the exact calculation of

damages as it pertains to KAP’s default judgment and its effect on the $700,000 final judgment.

Therefore, we remand this case for a new calculation of damages and costs, including an

assessment of attorney fees and any damages related to plaintiffs’ principal-agent claim.

¶ 91 CONCLUSION

¶ 92 The judgment of the circuit court of Whiteside County is affirmed in part and reversed in

part, and the cause is remanded for further proceedings.

¶ 93 Affirmed in part and reversed in part; cause remanded.

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