ILLINOIS OFFICIAL REPORTS
Appellate Court
Greer v. Advanced Equities, Inc., 2012 IL App (1st) 112458
Appellate Court CARL C. GREER and THOMAS A. FLOYD, Plaintiffs-Appellees, v.
Caption ADVANCED EQUITIES, INC., KEITH DAUBENSPECK, and
DWIGHT BADGER, Defendant-Appellant.
District & No. First District, Second Division
Docket No. 1-11-2458
Filed January 31, 2012
Held Where plaintiffs purchased stock through defendants and then filed an
(Note: This syllabus action containing an allegation of common-law fraud based on
constitutes no part of defendants’ alleged oral misrepresentations and defendants brought an
the opinion of the court appeal pursuant to Supreme Court Rule 308, which presented the certified
but has been prepared question of whether a stock purchaser is barred as a matter of law from
by the Reporter of pleading in a common-law fraud action that it relied on oral statements
Decisions for the when purchasing the stock if the purchaser signed a subscription
convenience of the agreement containing a nonreliance clause stating that the purchaser is
reader.)
not relying on any oral representation made in connection with the
purchase, the appellate court answered the certified question in the
affirmative.
Decision Under Appeal from the Circuit Court of Cook County, No. 2010-L-002913; the
Review Hon. Raymond W. Mitchell, Judge, presiding.
Judgment Certified question answered.
Counsel on John B. Simon, Howard S. Suskin, and Mark D. Sokol, all of Jenner &
Appeal Block LLP, of Chicago, for appellants.
Michael Dockterman, John A. Luburic, and Patrick C. Frye, all of
Edwards Wildman Palmer LLP, of Chicago, for appellees.
Panel JUSTICE CONNORS delivered the judgment of the court, with opinion.
Presiding Justice Quinn and Justice Harris concurred in the judgment and
opinion.
OPINION
¶1 This appeal presents the following certified question:
“Where a purchaser of securities contractually agrees through a non-reliance clause
that it is not relying on any oral representation made in connection with its purchase of
the securities, is the purchaser barred as a matter of law from thereafter pleading in an
action alleging common law fraud that it relied on oral statements when purchasing the
securities?”
Our answer is yes.
¶2 The facts of this case are straightforward. In 1999, plaintiffs bought shares of stock in
Pixelon, Inc., from defendants. Prior to the purchase, plaintiffs received a document called
a private placement memorandum (PPM) from defendants, which provided details about the
company and the proposed investment. Plaintiffs then signed a contract known as a
subscription agreement in order to consummate the stock purchase. The subscription
agreement contained the following clause, which is known as a “nonreliance” clause:
“In evaluating the suitability of an investment in [Pixelon], the undersigned [,i.e.,
plaintiffs], having been delivered a copy of the [PPM], acknowledges that he has relied
solely upon the [PPM], documents and materials submitted therewith, and independent
investigations made by the undersigned in making the decision to purchase the Shares
subscribed for herein, and acknowledges that no representations or agreements (oral or
written), other than those set forth in the [PPM], have been made to the undersigned with
respect thereto.”
¶3 According to plaintiffs, not long after they signed the subscription agreement they
allegedly discovered that certain material statements that defendants had made orally and in
writing about Pixelon were untrue. Plaintiffs eventually filed suit, first in federal court and
then, after that lawsuit was dismissed for reasons not relevant here, in the circuit court of
Cook County. In the circuit court, plaintiffs advanced several causes of action, but the only
one that is relevant to the certified question is common-law fraud based on defendant’s
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alleged oral misrepresentations. Defendants moved to dismiss under section 2-619 of the
Code of Civil Procedure (735 ILCS 5/2-619 (West 2010)).
¶4 This being an appeal pursuant to Illinois Supreme Court Rule 308 (eff. Feb. 26, 2010),
we strictly limit our review to the certified question, which we consider de novo as a matter
of law. See Barbara’s Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 58 (2007). We accordingly
take no position on the merits of the underlying case. The narrow question at issue is the
legal effect of this kind of nonreliance clause on a common-law fraudulent oral
misrepresentation claim. Defendants argue that Illinois case law establishes a rule that
categorically bars a common-law fraudulent oral misrepresentation claim involving securities
whenever there is a nonreliance clause such as the one in this case. Plaintiffs, on the other
hand, argue that such a fraud claim is only barred when the alleged oral misrepresentation
contradicts another representation in the written instrument that contains the nonreliance
clause.1
¶5 At bottom, the certified question is about the meaning of one element of the common-law
tort of fraudulent misrepresentation. The elements of the tort are (1) a false statement of
material fact, (2) known or believed to be false by the person making it, (3) an intent to
induce the plaintiff to act, (4) action by the plaintiff in justifiable reliance on the truth of the
statement, and (5) damages caused by such reliance. See, e.g., Doe v. Dilling, 228 Ill. 2d 324,
342-43 (2008). At issue is the fourth element, and the legal question is this: can plaintiffs
claim to have justifiably relied on an oral representation while simultaneously disclaiming
such reliance in the nonreliance clause of the written subscription agreement?
¶6 We have previously considered this issue in three cases. In Adler v. William Blair & Co.,
271 Ill. App. 3d 117 (1995), the plaintiffs received a PPM that detailed the risk of the
proposed investment and then signed a subscription agreement that contained a warranty to
the effect that the plaintiffs “had read the PPM and made the decision to invest relying solely
on the information contained in the PPM and not in reliance on any other information.”
(Emphasis added.) Id. at 126. When the investment soured, the plaintiffs sued and alleged,
among other things, fraudulent oral misrepresentation. See id. We held as a matter of law that
the plaintiffs could not have justifiably relied on any of the alleged oral misrepresentations
because of the nonreliance clause in the subscription agreement. See id. at 126-27. Although
the plaintiffs claimed that clauses in the PPM and the subscription agreement that encouraged
plaintiffs to “ask questions” about and “verify the accuracy” of the PPM justified their
reliance on outside representations, we rejected this argument, noting that “[t]o accept the
plaintiffs’ contention is to hold the written agreement for naught.” Id. at 127.
¶7 We next discussed the Adler rule, as we will refer to this principle for ease of reference,
in Tirapelli v. Advanced Equities, Inc., 351 Ill. App. 3d 450 (2004). In that case, the plaintiffs
bought shares in a company from the defendants via a subscription document that contained
1
Plaintiffs actually use the majority of their response brief on appeal to argue that we should
decline to answer the certified question. Given that plaintiffs unsuccessfully made this same
argument in opposition to defendants’ Rule 308 petition for leave to appeal, which we granted, we
will not revisit it here.
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a nonreliance clause, which read: “In evaluating the suitability of an investment by the
undersigned Company, the undersigned has relied solely upon the materials made available
to the undersigned at the undersigned’s request and independent investigations made by the
undersigned in making the decision to purchase the Preferred Membership Interests
subscribed for herein, and acknowledges that no representations or warranties (oral or
written), have been made to the undersigned with respect thereto.” (Internal quotation marks
omitted.) Id. at 453. The subscription documents also contained an integration clause. See
id. When plaintiffs allegedly learned that some representations were false, they attempted to
rescind the transaction and, failing that, filed a lawsuit alleging, among other things,
common-law fraudulent oral misrepresentation. See id. at 453-54. In our opinion, we
discussed both Adler and the federal case Rissman v. Rissman, 213 F.3d 381 (7th Cir. 2000),
ultimately reaffirming Adler and holding that “[p]laintiffs’ reliance was unreasonable as a
matter of law” because the nonreliance clause disclaimed any reliance on the defendants’
representations. Tirapelli, 358 Ill. App. 3d at 458. This conclusion followed from the general
rule that, “[a]lthough normally a question of fact, a court can determine reasonable reliance
as a matter of law when no trier of fact could conclude that it was reasonable to rely on the
alleged statements or when only one conclusion can be drawn.” (Internal quotation marks
omitted.) Id. at 456.
¶8 We analyzed a similar situation in Benson v. Stafford, 407 Ill. App. 3d 902 (2010).
Revisiting Tirapelli, Rissman, and Adler, we considered whether the existence of a
nonreliance clause “automatically defeat[s] an allegation of justifiable reliance.” Id. at 922.
As in Adler and Tirapelli, we again found that the nonreliance clause was fatal to the
plaintiff’s fraud claim. See, e.g., id. at 927 (“[T]he fraud cannot occur, because the parties
have agreed that there was no reliance, a necessary element for fraud.” (Emphasis omitted.)).
We also came to two important conclusions. First, we reaffirmed the Adler rule and noted
that it was an “automatic rule precluding damages for fraud based on oral representations in
the presence of a nonreliance clause.” Id. at 924. Second, we distinguished the Adler rule
from the similar federal rule as discussed in Judge Rovner’s concurrence in Rissman, which
as we will see below has important consequences for plaintiffs’ arguments in this case. See
id. (comparing Rissman and Tirapelli).
¶9 Based on Benson, Tirapelli, and Adler, the law on this point seems quite clear: if a
purchaser signs an agreement containing a nonreliance clause that disclaims reliance on any
oral representations by the seller, then the purchaser cannot thereafter maintain a cause of
action for common-law fraudulent oral misrepresentation. This is a logical rule, given that
it is hardly justifiable for someone to rely on something that they have agreed not to rely on,
and without justifiable reliance there can be no fraud. Even so, plaintiffs make two
arguments that we will examine in order to clarify the scope of the Adler rule. Plaintiffs
assert that the Adler rule should not, in fact, be applied in all common-law fraudulent oral
misrepresentation cases in which a nonreliance clause exists. In plaintiffs’ view, the Adler
rule only bars claims that are based on oral misrepresentations that contradict written
representations such as those contained in the PPM. The scope of the rule matters for this
case because plaintiffs’ common-law fraudulent oral misrepresentation claim is based in
large part on defendants’ oral reiteration or confirmation of allegedly false written
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representations that are contained in the PPM, which means that defendants’ alleged oral
misrepresentations do not contradict their written representations and plaintiffs’ claim would
therefore evade the Adler rule as plaintiffs interpret it. Plaintiffs base their argument on both
our precedent and federal law, which we will examine separately.
¶ 10 Regarding our own precedent, plaintiffs’ argument is essentially that Adler’s holding
depended on contradictions between the oral and written representations in that case.
Contrary to plaintiffs’ argument, however, our decision in Adler did not depend on any
contradiction between oral and written representations. Rather, the holding in Adler was
grounded in the irreconcilable contradiction between the existence of the nonreliance clause,
which disclaimed reliance on any information not contained in the PPM, and the plaintiffs’
claims that they had, in fact, relied on information outside of the PPM. See Adler, 271 Ill.
App. 3d at 126-27. Plaintiffs are therefore only partially correct: Adler’s holding did depend
on a contradiction, but it was not the same contradiction as the one that plaintiffs rely on for
their argument in this case.
¶ 11 Plaintiffs also cite Olczyk v. Cerion Technologies, Inc., 308 Ill. App. 3d 905, 913 (1999),
but their reliance is misplaced. Olczyk dealt in part with questions surrounding the
application of the “bespeaks caution” doctrine, which is a securities-related defense that
precludes an investor from justifiably relying on statements in a prospectus when those
statements are accompanied by warnings about events that could occur in the future and
affect the investment. See generally id. at 912-15. In that case, we summarily distinguished
Adler, merely noting in passing that Adler had little to do with the facts at issue in Olczyk.
See id. at 913. We did not analyze Adler or explain its rule further, so Olczyk has no impact
on the development of the Adler rule.
¶ 12 Even if we were to assume for purposes of argument that, as plaintiff would have it, the
Adler rule was originally limited to its facts, Tirapelli and Benson have since demonstrated
that the Adler rule applies even where there is no contradiction between oral and written
representations. In both Tirapelli and Benson there was no indication that such a
contradiction is necessary in order to apply the rule, and in fact Benson does not mention a
contradiction between the oral and written representations at all. See Benson, 407 Ill. App.
3d at 920-28. The key factor in all three cases is the existence of the nonreliance clause.
Plaintiffs argue that the existence of the clause should only form a single factor in a detailed
factual inquiry regarding justifiable reliance, citing Benson’s statement that “[o]ne factor that
courts have considered in analyzing justifiable reliance is the presence of a nonreliance
clause in a contract between the parties.” Id. at 922. Plaintiffs miss the lesson of the results
in Benson, Tirapelli, and Adler: while it is true that the existence of a nonreliance clause can
be a factor to consider in common-law fraud cases, such a clause is dispositive if it disclaims
reliance on oral representations and a plaintiff’s claim is premised on an oral
misrepresentation. We can certainly imagine circumstances in which a nonreliance clause
might not be dispositive, for example if the clause merely disclaimed reliance on written
representations but was silent as to oral representations. Yet such a scenario is not at issue
here, so that is a question for another case. As far as it is applied to oral representations and
the type of nonreliance clause at issue in this case, however, the rule of Adler and its progeny
are clear: if a nonreliance clause disclaims reliance on oral representations, then a plaintiff
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may not claim justifiable reliance on them.
¶ 13 Alternatively, plaintiffs observe that the Adler rule was originally imported from federal
law, so they ask us to consider federal cases and reevaluate the scope of the rule. Plaintiffs
cite several federal district court cases in support, noting that federal courts only bar fraud
claims when they are based on conflicting oral and written representations. See, e.g., Reis
Robotics USA, Inc. v. Concept Industries, Inc., 462 F. Supp. 2d 897, 909 (N.D. Ill. 2006)
(noting that “the Seventh Circuit’s rejection of the fraud claim in Rissman was based, not on
the mere presence of the nonreliance clause, but on the presence of the nonreliance clause
in conjunction with a provision that clearly contradicted the plaintiff’s prior statement”).
¶ 14 There are two problems with this argument. First, as we mentioned above, Benson and
Tirapelli made clear that Illinois state law as expressed in the Adler rule is distinct from
federal treatment of the same issue. See Benson, 407 Ill. App. 3d at 924. Given that federal
interpretations of Illinois law are not binding on Illinois courts, we need not consider these
cases as anything other than persuasive authority. See City of Chicago v. Groffman, 68 Ill.
2d 112, 118 (1977) (“The general rule is that decisions of United States district and circuit
courts are not binding upon Illinois courts.”). This is particularly true given that plaintiffs
offer only trial court opinions in support of their position, all but one of which are
unpublished and were issued prior to 2007. By rule, the unpublished cases have no
precedential value. See Centerpoint Properties Trust v. Olde Prairie Block Owner, LLC, 398
Ill. App. 3d 388, 394 (2010) (citing Fed. R. App. P. 32.1 (eff. Dec. 1, 2006) (prohibiting
citation of unpublished federal cases issued before January 1, 2007)).
¶ 15 Second, the cases that plaintiffs rely on no longer accurately reflect the state of federal
law on this subject. In Extra Equipamentos E Exportacao Ltda. v. Case Corp., 541 F.3d 719,
726 (7th Cir. 2008), the Seventh Circuit explained the difference between the effect of a
nonreliance clause (which the court colorfully refers to as “ ‘big boy’ clauses (as in ‘we’re
big boys and can look after ourselves’)” (see id. at 724)) in actions for breach of contract and
tort actions for fraud. After finding that the nonreliance clause was enforceable as a matter
of contract law, the Seventh Circuit observed:
“And if it weren’t [contractually enforceable], that would not save the day for [the
plaintiff]. For its suit is a suit for fraud, and the significance of the no-reliance clause,
which does not depend on its enforceability in contract law, is that its language and the
circumstances of its negotiation render [the plaintiff’s] reliance on [the defendant’s]
supposed oral misrepresentations unreasonable as a matter of law. The principle behind
a no-reliance clause is, as this court explained in [Rissman, 213 F.3d at 384],
‘functionally the same as a doctrine long accepted in this circuit: that a person who has
received written disclosure of the truth may not claim to rely on contrary oral
falsehoods.’ ” (Emphasis added.) Id. at 726.
See also id. at 723 (“If reliance on the allegedly fraudulent statements *** is negated by the
no-reliance clause, [the plaintiff’s] fraud claim evaporates ***.”). It has always been
uncertain how strongly the Seventh Circuit adhered to Rissman’s caveat against blanket
application the Adler rule, given that the caveat originally appeared in a concurrence rather
than the majority opinion. See Rissman, 213 F.3d at 389 (Rovner, J., concurring). The upshot
of Extra Equipamentos is that the Seventh Circuit seems to have disavowed the position that
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plaintiff advocates for and now appears to be in accord with Adler on the subject.
¶ 16 Taking all of the above discussion into account, we reaffirm our holdings in Benson,
Tirapelli, and Adler, and we answer the certified question in the affirmative. With that said,
we note that our answer is necessarily limited to the situation presented by the certified
question, that is, to a situation in which a purchaser of securities pursues a common-law
fraud claim based on alleged oral misrepresentations and there exists an applicable written
instrument that contains a nonreliance clause disclaiming reliance on oral misrepresentations.
We express no opinion on any other scenario. See Barbara’s Sales, 227 Ill. 2d at 58.
¶ 17 Certified question answered.
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