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No. 1-00-2684

JUSTICE REID delivered the opinion of the court:

The appellants, Prime Leasing, Inc. (Prime), and Wechsler &Co., Inc. (Wechsler), appeal the trial court's order whichgranted the defendants', Robert A. Kendig, David A. Brainard,Melvin J. Estrin, Abbey J. Butler, William A. Lemer, Harvey A.Fain, Alfred H. Kingon, Sheldon W. Fantle and C. Wayne Pyrant,motions to dismiss the plaintiffs' fourth amended complaintpursuant to sections 2-615 and 2-619 of the Illinois Code ofCivil Procedure (735 ILCS 5/2-615, 2-619 (West 2000)). Onappeal, the plaintiffs maintain their fourth amended complaintsufficiently pleads a cause of action for: (1) common law fraud,(2) negligent misrepresentation, (3) consumer fraud pursuant tothe Illinois Consumer Fraud and Deceptive Business Practices Act(815 ILCS 505/1 et seq. (West 2000)), and (4) breach of fiduciaryduty. For the reasons that follow, we affirm the decision of thetrial court.

THE FACTS

This matter arises out of the 1996 bankruptcy of BenFranklin Retail Stores, Inc. (Ben Franklin). Ben Franklinconsisted of a group of related corporations that were involvedin various aspects of the "five and dime" retail business. Primeand Wechsler are creditors that were unable to collect theirdebts from Ben Franklin as a result of its bankruptcy.

Prime is a provider of financial services. Its servicesinclude the "leasing and rental of equipment, capital equipmentand related items for commercial and marketing markets." Wechsler is a stock brokerage firm and during the relevant timeperiod was a market maker and investor in Ben Franklin stocks andbonds.

Defendant Pyrant is a former credit manager at Ben Franklinand is represented by separate counsel on appeal. DefendantBrainard, the former senior vice president and chief financialofficer of Ben Franklin, was never served and has never appearedin this action. Defendant Fantle is now deceased. Fantle'sestate has neither been served with the appellants' fourthamended complaint nor has it filed an appearance in this action. The remaining six defendants, who were all former Ben Franklindirectors, are represented by the same counsel and will bereferred to herein as the Directors.

On December 23 1999, the appellants filed a six-count,fourth amended complaint which alleged: (1) fraud against Kendig,Brainard and Pyrant, (2) fraud against the Directors, (3)negligent misrepresentation against Brainard and Kendig, (4)negligent misrepresentation against the Directors, (5) consumerfraud, and (6) breach of fiduciary duty against the Directors.

The following statements represent the allegations made inthe appellants' fourth amended complaint.

The appellants alleged that Wechsler purchased "severalmillion dollars in Ben Franklin bonds" between 1995 and 1996. Before the purchase, Wechsler reviewed and relied on "publiclyavailable financial information issued by [the] [d]efendantsconcerning Ben Franklin."

In the fall of 1995, on more than one occasion, Wechslerspoke with Brainard and Kendig, who was Ben Franklin's president,about the purported financial condition of Ben Franklin. Wechsler alleged that both Brainard's and Kendig'srepresentations were materially false. The complaint states:

"Wechsler knew Ben Franklin's RevolvingCredit Facility was asset based and securedby, among other things, short term accountsreceivable. Kendig misrepresented toWechsler Ben Franklin's net accountreceivables and availability under the CreditFacility and thus the true value and datingof the accounts receivable ***."

In November 1994, Ben Franklin loaned $4.94 million toCrafts Plus, Inc. (Crafts Plus), which evidenced a loan of $4.2million and the conversion of $774,000 of accounts receivableowed to Ben Franklin. Crafts Plus began purchasing a significantamount of inventory from Ben Franklin, and in less than a year,over $6 million was past due.

The appellants maintained that the "[d]efendants should havedisclosed the dating of the accounts receivable, should have seta reserve for bad debt for Crafts Plus, and should have disclosedthat redating was authorized by management." The complaintalleged that the defendants' failure to disclose this informationmislead the appellants as to the true value of Ben Franklin.

Prime entered into a merchandising management informationsystem lease with Ben Franklin valued at $1.851 million, on May7, 1996. Prime alleged that prior to entering into the leasingagreement, it "requested and received financial reports and otherfinancial information *** from Ben Franklin and had additionalconversations with Ben Franklin representatives regarding thefinancial condition of Ben Franklin." The complaint furtherstates: "Brainard represented that all of the financialinformation provided to Prime was true and accurate. Based uponthe financial reports given and the presentations made by the BenFranklin representatives including Brainard, Prime approved andentered into the [l]ease with Ben Franklin."

The specific documents that Ben Franklin provided to Primewere Ben Franklin's Securities and Exchange Commission (SEC) form10-Q for the nine-month period ending December 31, 1995, aninternally prepared financial statement for the 11-month periodending February 28, 1996, hand-written comments from Brainardregarding what the company would report for the 12-month periodending March 31, 1996, and forecasted income and sales. Theappellants alleged that "Ben Franklin supplied this documentationand information to Prime with the knowledge and consent of all[d]efendants."

The appellants allege that before the lease between Primeand Ben Franklin was executed or prior to Wechsler purchasing BenFranklin bonds, Ben Franklin's financial reports were altered. Specifically, the financial reports were altered by "freshening"the dates of the accounts receivable and of inventory held by BenFranklin and its wholly owned subsidiaries. "Freshening"consisted of the systematic, deliberate and/or recklessalteration of the "age" of accounts receivable, and also thealteration of the "age" of the inventory by selling year-oldinventory to another Ben Franklin store and deeming it "new" inthe second store on the company's financial reports.

The appellants alleged that the redating of accountsreceivable was misleading and inconsistent with accountingpractices and that Ben Franklin's failure to disclose thisinformation was material to them. The appellants alleged thatthey were not provided a true and accurate picture of BenFranklin's financial condition because of its practice ofredating accounts receivable.

The appellants' fourth amended complaint states:

"The older an account receivable is,generally the less collectable it is. Byredating accounts receivable, allowing thepolicy without adequate oversight, andratifying such policy and nondisclosure ***each of the [d]efendants materiallyunderstated allowance for bad debt. Thesecret redating of large dollar amounts ofreceivables *** enabled the [d]efendants toextend the existence of Ben Franklin afterits insolvency. In November[] 1996, afterdisclosure of its redating bec[a]me public,Ben Franklin adjusted its allowance for baddebt in connection with receivables from $1.4million as of March 31, 1996 to $23.8 millionas of September 30, 1996."

The complaint further alleged that prior to the execution ofthe lease between Prime, and before Wechsler purchased BenFranklin bonds, "approximately $33.2 million of accountsreceivable were in actuality over 75 days old, and, therefore,not likely to be collected."

The appellants alleged that Ben Franklin practicedfreshening so as to enhance the appearance of the company'sfinancial reports. Specifically, appellants maintained that BenFranklin used financial reports to artificially inflate thefinancial condition of the company and thereby induce Prime toenter into the leasing agreement and to induce Wechsler topurchase Ben Franklin bonds. The appellants alleged that hadthey known of Ben Franklin's "undisclosed redating of inventoryand invoices and the freshening of the due dates of certainaccounts receivable, [they] would not have entered into thetransactions ***."

The appellants further alleged that the Directors"participated in the acts" by expressly ratifying the acts ofBrainard and Kendig. The Directors authorized the leaseagreement between Ben Franklin and Prime by authorizing aresolution which was certified by Ben Franklin's assistantsecretary, Gerard Para. In the complaint, the appellants alsoallege that the Directors ratified a second resolution. Thecomplaint states: "But for the Corporate Resolution for the PrimeLease and, on information and belief, the similar CorporateResolution for Ben Franklin's secured lenders, Wechsler would nothave purchased the bonds."

On July 26, 1996, Ben Franklin filed a voluntary petitionfor relief under chapter 11 of the Bankruptcy Code (11 U.S.C.