2017 IL App (3d) 160162
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, 147 Ill. App. 3d
571, 580 (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, 199 Ill. 2d 483, 504-05 (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, 632 F.2d 413 (5th Cir. 1980), and International
Financial Services Corp. v. Chromas Technologies Canada, Inc., 356 F.3d 731 (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, 632 F.2d at 421 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, 356
F.3d at 738-39. 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. Id. at 737. 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. Id. at 735, 737.
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, 2014 IL App (1st) 130469, ¶ 29 (discussing Fontana v. TLD Builders, Inc., 362 Ill.
App. 3d 491 (2005), and noting that a corporate veil claim is an equitable remedy); Fontana, 362
Ill. App. 3d at 500 (“ ‘[t]he doctrine of piercing the corporate veil is an equitable remedy’ ”
(quoting Peetoom v. Swanson, 334 Ill. App. 3d 523, 527 (2002)), and In re Rehabilitation of
Centaur Insurance Co., 238 Ill. App. 3d 292, 300 (1992) (“[t]he doctrine of ‘piercing the
corporate veil’ is an equitable remedy” (citing Tilley v. Shippee, 12 Ill. 2d 616, 623 (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, 31 Ill. 2d 146, 148 (1964) (“There was then and there
is now no constitutional right of trial by jury in equity.”); Martin v. Strubel, 367 Ill. 21, 22-23
(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, 60 Ill. App. 3d 634, 635 (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, 41 Ill. App. 3d 674, 678 (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, 2014 IL App (1st) 121759, ¶ 25 (quoting Riley
v. Jones Brothers Construction Co., 198 Ill. App. 3d 822, 829 (1990)). The standard for
determining whether records are admissible as business records is abuse of discretion. Id.
¶ 39 The business record exception requires evidence related to the document’s creation. See
Apa v. National Bank of Commerce, 374 Ill. App. 3d 1082 (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. Id. at 1085-86. 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. Id. at 1088. Specifically, plaintiff
only testified to keeping the records in the regular course of business and did not testify to the
document’s creation. Id. “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.) Id.
¶ 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, 374 Ill. App. 3d at 1088.
¶ 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, 2011 IL App
(1st) 102811, ¶ 26.
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, 2014 IL App (3d) 130137, ¶ 18
(“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., 38 Ill. App. 2d 358, 367 (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, 238 Ill. 2d 215, 225 (2010). All of the evidence must be construed in the light
most favorable to the nonmoving party. Id. The standard of review for a motion for a directed
verdict is de novo. Id.
¶ 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, 402 Ill. App. 3d
1084, 1087 (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., 339 Ill. App. 3d 927, 937 (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, 408 Ill. App. 3d 327, 350-51 (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, 57 Ill. App. 2d
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 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,
402 Ill. App. 3d at 1087. 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, 408 Ill. App. 3d at 350. 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.” Id.
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.” Id. at 351. The trial court’s finding on a count of fraud will not be
disturbed unless it was against the manifest weight of the evidence. Id. at 350-51. 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, 57 Ill. App. 2d
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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, 407 Ill. App. 3d 902 (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. Id. at 921.
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.) Id. at 909.
¶ 59 The First District ruled that the language in the agreement constituted a nonreliance
clause. The court distinguished Zimmerman v. Northfield Real Estate, Inc., 156 Ill. App. 3d 154
(1986), noting that the clause in Zimmerman did not contain nonreliance language that existed in
the Benson case. Benson, 407 Ill. App. 3d at 927; Zimmerman, 156 Ill. App. 3d at 159 (“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, 407 Ill. App. 3d at 927. In other words, Benson held that a nonreliance clause requires
inclusion of specific nonreliance language. Id.
¶ 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, 57 Ill. App. 2d
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.
¶ 64 A corporation exists separate and distinct from its shareholders, directors, and officers.
Jacobson v. Buffalo Rock Shooters Supply, Inc., 278 Ill. App. 3d 1084, 1088 (1996). Generally,
the shareholders, directors, and officers are not liable for the corporation’s obligations. Id. 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.” Id.
¶ 65 “Courts are reluctant to pierce the corporate veil.” Id. 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. Id. 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. Id.
¶ 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., 63 Ill. App. 3d 23,
28-29 (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
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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
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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., 235 Ill. 2d 1, 6 (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,
236 Ill. 2d 315, 319 (2010). The most reliable indicator of that intent is the language of the
statute itself. Id. 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, 235 Ill. 2d 21, 29 (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, 2015 IL App (3d)
140858, ¶ 14.
¶ 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
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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, 282 Ill. App. 3d 174, 182 (1996) (“This
amendment is clearly a change in the law, not a mere clarification, as it is specifically carving
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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, 236 Ill. 2d 315, 319
(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, 90 Ill. App. 3d 622, 627 (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. Id. However, after 1973, the General Assembly added
the words “trade” and “commerce” to the Act, which broaden the protection “beyond matters
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connected with the sale or advertisement of merchandise to the conduct of any trade or
commerce.” Id. 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., 371 Ill. App. 3d 797, 806
(2007) (citing Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100, 180
(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., 153 Ill. 2d 534, 543 (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
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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, 256 Ill. App. 3d 674, 678 (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.” Id. at 679. “Any doubt as to whether pleadings should be amended should be resolved
in favor of an amendment.” Id. The standard of review is abuse of discretion. Cirro Wrecking
Co. v. Roppolo, 153 Ill. 2d 6, 24 (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., 408 Ill. App. 3d 1051, 1057
(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
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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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