Thornwood, Inc. v. Jenner & Block

Case Date: 09/22/2003
Court: 1st District Appellate
Docket No: 1-01-1767 Rel

FIRST DIVISION
September 22, 2003



No. 1-01-1767

THORNWOOD, INC., THOMAS A. THORNTON, 
and THORNTON SOD NURSERY, INC.

          Plaintiffs-Appellants,

                 v.

JENNER & BLOCK, an Illinois General 
Partnership; CARTER H. KLEIN, 
Individually; RANDOLPH M. PERKINS, 
Individually; and RICHARD L. VERKLER, 
Individually,

          Defendants-Appellees.

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Appeal from the
Circuit Court of
Cook County


01 L 1401


Honorable
James F. Henry,
Judge Presiding

JUSTICE McBRIDE delivered the opinion of the court:

Plaintiffs-appellants (Thornton) appeal from the circuitcourt's dismissal of their verified complaint (complaint). Thornton's three-count complaint accused defendants-appellees(Jenner & Block) of (i) aiding and abetting a breach of fiduciaryduty; (ii) aiding and abetting a scheme to defraud; and (iii)aiding and abetting a scheme of fraudulent inducement. Jenner &Block moved to dismiss the complaint, claiming that Thorntonpreviously released his claims against Jenner & Block. The circuitcourt agreed and dismissed the complaint. Finding that Thorntonhas raised a material issue as to whether the release is valid, wereverse and remand.

In February 1991, Thomas A. Thornton and James Follensbee(Follensbee), through James Follensbee & Associates and JF+AProperties, Ltd., formed the Thornwood Venture Limited Partnership(Partnership) for the purpose of developing Thornton's Kane Countyfarm as a residential community and golf course (Thornwood GolfCourse). Thornton contributed 550 acres of land and an option tobuy an additional 180 acres of land. Thornton further agreed tofund the Partnership's endeavors until it was able to secure equityinvestors. Follensbee contributed his expertise and experience asan architect, engineer, and real estate developer to thePartnership. In exchange, Thornton received a 75% ownershipinterest in the Partnership. Follensbee received a 25% ownershipinterest and the right to be compensated for his services as thePartnership's managing general partner.

The Partnership consumed significant funds in its efforts todevelop the Property. By October 1994, Thornton had expended cashand incurred debt of more than $8 million for the Partnership. Follensbee made numerous efforts to recruit investors for thePartnership. In 1994, for instance, Follensbee approached PGA TourGolf Course Properties, Inc. (PGA), and Potomac Sports Properties,Inc. (Potomac), regarding the possibility of developing ThornwoodGolf Course as a PGA Tournament Players Course (TPC). The benefitsof such a partnership could have been substantial, including:

"(A) Golf tournament galleries of up to 75,000people per day to visit the community during PGA Tourevents;

(B) Immediate respect and credibility for the golfcourse by having the best players in the world compete onthe course and publicly discuss its merits andplayability;

(C) Unsurpassed recognition and overall communityawareness from sports media and national televisionaudiences;

(D) Ranking as a top residential community in annualrevenues and total home sales;

(E) Highest average prices paid for any comparablegolf area home sites;

(F) Increased real estate sales traffic directlyattributable to TPC/PGA Tour events;

(G) Diverse price ranges and products sold; and

(H) Realtor recommendations to prospects seekinggolf-oriented residential communities."

Thus, the Partnership was likely to experience tremendous revenuegrowth if Thornwood Golf Course was a TPC. Unfortunately, in aletter dated June 8, 1994, the PGA indicated that it would not bewilling to work with the Partnership "unless the developer [was]willing to start over." Follensbee delivered a copy of the letterto Thornton and told him that "the PGA and [Potomac's] involvementin the development project was not feasible."

Nevertheless, Follensbee continued to pursue partnershipnegotiations with the PGA and Potomac. Without disclosing hiscontinued negotiations, Follensbee began making plans with the PGAand Potomac regarding the layout of the golf course, the divisionof profits, and the duties of the Partnership, the PGA, andPotomac. None of these plans involved Thornton; nor were theydisclosed to Thornton.

In the midst of Follensbee's undisclosed efforts to recruitthe PGA and Potomac as partners, Thornton confronted Follensbeeregarding the significant expenditures he had made to fundFollensbee's development activities. Thornton's assets werequickly dissipating into the Partnership without any indicationthat the Partnership was likely to have any success in the nearfuture; thus, Thornton indicated to Follensbee that he desired toliquidate the Partnership or sell his interest. Follensbeeresponded that he would sue Thornton before he would allowliquidation of the Partnership. Alternatively, he indicated thathe would be interested in purchasing Thornton's interest in thePartnership. At that time, Follensbee did not inform Thornton thathis interest was likely to gain significant value in the nearfuture because of the agreement Follensbee was negotiating with thePGA and Potomac. Instead, Follensbee enlisted the services ofJenner & Block to assist him in acquiring Thornton's interest inthe Partnership. Jenner & Block also participated in Follensbee'snegotiations with the PGA and Potomac.

On January 11, 1995, Follensbee and Thornton executed asettlement agreement (settlement agreement), which provided therequirements and terms for Follensbee to acquire Thornton'sinterest in the Partnership. Alternatively, the settlementagreement provided for the liquidation of the Partnership. Significantly, the settlement agreement contained mutual releasesbetween the parties. The release agreed to by Thornton (FollensbeeRelease) provides:

"Except as specifically provided in this Agreementor in any other agreement entered into after the datehereof, Thornton, jointly and severally, and thePartnership, jointly and severally, herebyunconditionally and irrevocably release [Follensbee] andthe Partnership (and any Affiliates, directors, officers,employees, and agents of any of them) (collectively, the'Released Parties') from any and all claims or rightseither Thornton (or any of Thornton) or the Partnershipmay have against any one or more of the Released Partiesarising under or in any manner related to thePartnership, the Partnership Agreement, the ContributionAgreement, the Property, breach of fiduciary duties,securities laws, or the solicitation and nondisclosure ofdiscussions, offers, and opportunities regardingFinancing Activities, any other document, instrument oragreement (whether oral or written) between any ofThornton or the Partnership and any of the ReleasedParties, or the operations, activities and business ofthe Partnership, including but not limited to any and allobligations for the repayment of any loans or advances orthe payment of any interest thereon, the payment of anyfees, the reimbursement of expenses, or any other suchobligations of any kind or nature whatsoever."

Additionally, Thornton contemporaneously executed a release(Jenner & Block Release) purporting to relieve Jenner & Block,Follensbee's attorneys:

"from any liability from any and all claims,counterclaims, controversies, actions, causes of actions,demands, debts, damages, costs, attorneys fees, orliabilities of any nature whatsoever in law of [sic] inequity, whether known or hereinafter discovered, thatarose out of events that have occurred from the beginningof time until the date hereof."

At the time Thornton signed the releases, he was not awarethat Follensbee had continued negotiations with the PGA and Potomacand reached a conditional agreement for their involvement inThornwood Golf Course. Thornton did not become aware ofFollensbee's actions until November 1998, almost four years afterhe signed the releases. Nevertheless, Jenner & Block contends thatthese releases bar Thornton's claims. The trial court agreed anddismissed the complaint.

This court reviews the trial court's dismissal of thecomplaint de novo, considering the allegations of the complaint inthe light most favorable to Thornton. See Board of Directors ofBloomfield Club Recreation Ass'n v. Hoffman Group, Inc., 186 Ill.2d 419, 424 (1999). Our focus is not upon Thornton's ultimatechances of success on the merits, but whether the complaint islegally sufficient to allow Thornton to proceed with his claimsagainst Jenner & Block. Importantly, "[a] cause of action will notbe dismissed on the pleadings unless it clearly appears that theplaintiff cannot prove any set of facts that will entitle it torelief." Hoffman Group, 186 Ill. 2d at 424. In this case, theprimary issue is whether Thornton's claims were previouslyreleased, in which case, no set of facts would entitle Thornton torelief. Accordingly, we analyze the releases.

A release "is the abandonment of a claim to the person againstwhom the claim exists and is a contract to be construed undertraditional contract law." Hurd v. Wildman, Harrold, Allen &Dixon, 303 Ill. App. 3d 84, 88 (1999). This means that "[w]here awritten agreement is clear and explicit, a court must enforce theagreement as written. Both the meaning of the instrument, and theintention of the parties must be gathered from the face of thedocument without the assistance of parol evidence or any otherextrinsic aids." Rakowski v. Lucente, 104 Ill. 2d 317, 323 (1984).

A release, however, will not "be construed to include claimsnot within the contemplation of the parties." Carlile v. Snap-OnTools, 271 Ill. App. 3d 833, 838 (1995). In many cases, a releasemakes clear on its face what claims were within the contemplationof the parties at the time the release was given. In otherinstances, the release provides very general language that does notindicate with any clear definition what claims were within thecontemplation of the parties. In such cases, "the courts willrestrict the release to the thing or things intended to be releasedand will refuse to interpret generalities so as to defeat a validclaim not then in the minds of the parties." Carlile, 271 Ill.App. 3d at 839. In other words, general releases do not serve torelease unknown claims, which the party could not have contemplatedreleasing when it gave the release. See Farm Credit Bank of St.Louis v. Whitlock, 144 Ill. 2d 440, 448 (1991)("A general releaseis inapplicable to an unknown claim").

In Myers v. Health Specialists, S.C., 225 Ill. App. 3d 68(1992), for instance, the plaintiff sued his employer, seekingmalpractice coverage for a claim brought years after his employmenthad terminated and after the alleged malpractice. The defendantasserted that the plaintiff's claim was barred by a release signedseven years earlier by which the plaintiff released the defendantfrom:

" 'all manner of actions, causes, and causes ofactions, suits, debts, sums of money, accounts ***damages, judgments, executions, claims and demands,whatsoever, in law or in equity, *** which [plaintiff]now has against [defendant] or ever had, *** by reason ofany matter, cause, or thing, whatsoever, on or at anytime prior to the date of these Presents.' " Myers, 225Ill. App. 3d at 70.

The court found that the release did not bar the plaintiff's claimfor two reasons. One was the breadth of the release, and the otherwas the release's time exemption. Myers, 225 Ill. App. 3d at 75. Specifically, the court found that "[t]he sweeping language of therelease, *** renders it general" and prevents the release frombarring the plaintiff's claim of which he was unaware when heexecuted the release. Myers, 225 Ill. App. 3d at 75.

Similarly, the Jenner & Block Release contains sweepinglanguage which makes it very general. It purports to release allclaims of any sort "that have occurred from the beginning of timeuntil the date hereof." As such, when the release is considered onits face, it cannot be construed to release the claims now made byThornton because those claims were unknown to Thornton when hesigned the release, and those claims could not have been in thecontemplation of the parties when the release was signed. Notably,the claims may have been contemplated by Jenner & Block, whocrafted the release in an effort to protect itself from allpotential claims. But knowledge by one party, where the otherparty lacks knowledge, does not bring the claim within the"contemplation of the parties." Todd v. Mitchell, 168 Ill. 199,204 (1897)("[T]he breach of the covenant of warranty could not havebeen in contemplation of the parties, because unknown to theappellant at the time ***").

Importantly, however, the Jenner & Block Release was notexecuted in a vacuum. It was executed contemporaneously with thesettlement agreement. And when more than one agreement iscontemporaneously entered into, "they are considered one contractand the information needed to determine what 'claims, demands, andcauses of action' were intended can be derived from the face of the[contemporaneously executed documents]." First National Bank ofGeneva v. Lively, 211 Ill. App. 3d 1, 5 (1991). Therefore, theSettlement Agreement and the Follensbee Release contained thereinmay be considered in determining the intent of the parties inexecuting the Jenner & Block Release and may even compensate forthe general nature of the Jenner & Block Release by providingguidance as to what claims were within the contemplation of theparties when the Jenner & Block Release was executed. Because theFollensbee Release is considered separately below, we do notconsider that release here, but the same reasoning applies topreclude dismissal.

The Follensbee Release is less general than the Jenner & BlockRelease in numerous ways. First, it limits the subject matter towhich the release applies. Specifically, only partnership-relatedclaims are released. Second, the Follensbee Release identifiesseveral types of claims that are explicitly released. Theseinclude claims arising under or related to the PartnershipAgreement, claims related to the property, and claims related tobreaches of fiduciary duties. Certainly, Thornton's claims ofaiding and abetting a breach of fiduciary duty, a scheme todefraud, and fraudulent inducement concern the Partnership and arebased, in large part, on alleged breaches of fiduciary dutyperpetrated by Follensbee with the assistance of Jenner & Block. Thus, these claims are covered by the Follensbee Release becausethe claims contemplated by the parties included partnership-relatedclaims. Further, because the Follensbee Release releasesFollensbee and his agents, its terms release these contemplatedclaims against Jenner & Block.

Additionally, as noted above, the terms of the FollensbeeRelease and the settlement agreement may be properly considered ininterpreting the Jenner & Block Release. The Follensbee Releasereleases partnership-related claims such as those now made. Thus,the claims are barred if the releases are valid, because suchpartnership-related claims were within the contemplation of theparties at the time the releases were executed.

When a defendant's motion to dismiss is based upon a release,which is valid on its face, as here, "then the burden shifts to theplaintiff to sufficiently allege and prove that a material issue offact exists which would invalidate the agreement." Meyer v.Murray, 70 Ill. App. 3d 106, 114 (1979). See also Hurd v. Wildman,Harrold, Allen & Dixon, 303 Ill. App. 3d 84, 89 (1999); Dickman v.E.I. Du Pont de Nemours & Co., 278 Ill. App. 3d 776, 781 (1996);Roberts v. Dow Chemical Co., 244 Ill. App. 3d 253, 256 (1993). Such facts include that "there has been fraud, duress, mutualmistake, or, at least in some cases, unconscionability." Carlile,271 Ill. App. 3d at 839. Where such facts are alleged, an issue ofmaterial fact exists, which if proven, would likely defeat theaffirmative defense of prior release. See Carlile, 271 Ill. App.3d at 840-42.

In Phil Dressler & Associates, Inc. v. Old Oak BrookInvestment Corp., 192 Ill. App. 3d 577, 579 (1989), for instance,the court reversed a grant of summary judgment where it found "agenuine issue existed as to a material fact, namely whether therelease was procured by fraud." In that case, the parties signeda release of claims arising in connection with a developmentagreement. Phil Dressler & Associates, 192 Ill. App. 3d at 582. The evidence surrounding the execution of the release, however,revealed that one of the parties to the release may have misstatedmaterial facts in order to induce the other plaintiff to sign therelease. Phil Dressler & Associates, 192 Ill. App. 3d at 583-84. Thus, the court found that a material fact existed as to whetherthe release had been fraudulently induced and reversed summaryjudgment. Phil Dressler & Associates, 192 Ill. App. 3d at 585-86.

Similarly in Ainsworth Corp. v. Cenco, Inc., 107 Ill. App. 3d435 (1982), this court reversed a grant of summary judgment whereit found a question of fact regarding fraudulent inducement. Ainsworth involved an asset purchase agreement for the purchase ofthe inventory and operating assets of a company engaged in themanufacture and sale of medical sutures and related hospitalmedical products (Asset Purchase Agreement) . Ainsworth, 107 Ill.App. 3d at 436. A warranty in the Asset Purchase Agreementprovided:

" ' to the best of [Cenco's] knowledge none of theproperties owned occupied or operated by [Cenco], nor theownership, occupancy or operation thereof, is, to anyextent materially and adversely affecting the business of[Cenco], in violation of any law, ordinance or regulationor *** federal, state and local safety laws, regulationsand ordinances (including *** the United States Pure Foodand Drug Act, or similar laws and regulations ***.)' " Ainsworth, 107 Ill. App. 3d at 436.

Subsequently, the parties had a dispute regarding the AssetPurchase Agreement. In their resolution of that dispute, theparties entered into a settlement agreement, which provided, inpart:

" '[T]he representations and warranties of [Cenco]in the [Asset Purchase] Agreement shall all expire on thedate of [the settlement agreement] and Ainsworth andCvengros waive any breach of any of such representations,warranties or covenants, or any default under theagreement which may have occurred prior to the date ofthis agreement.' (Emphasis added.)" Ainsworth, 107 Ill.App. 3d at 437.

The United States Food and Drug Administration inspected themedical products facilities acquired through the Asset PurchaseAgreement four months after the settlement agreement was executed. That inspection revealed that the manufacturing processes usedviolated federal regulations. Ainsworth, 107 Ill. App. 3d at 437. Plaintiff filed suit against defendants alleging that they "hadfraudulently induced it to purchase the medical products group bymisrepresenting that it was being operated in accordance withgovernment manufacturing and sterility procedures." Ainsworth, 107Ill. App. 3d at 438. Defendants asserted the release as anaffirmative defense. Ainsworth, 107 Ill. App. 3d at 438. Thetrial court granted summary judgment finding that "the terms of thesettlement agreement between these parties [were] unambiguous andeffectively barred the subsequent tort action, as a matter of law." Ainsworth, 107 Ill. App. 3d at 439. Significantly, in reversing onappeal, this court noted:

"A careful review of the record does not disclose anunequivocal denial by defendants that fraudulentrepresentations were not in fact made to the plaintiff. Instead, defendants persistently argue that the plainlanguage of the settlement agreement waiving 'any breachof any such representations' wholly precludes anyinterpretation to the contrary." Ainsworth, 107 Ill.App. 3d at 439.

In Phil Dressler & Associates and Ainsworth, the alleged fraudconcerned misrepresentations of fact. However, "[f]raud also mayconsist of the intentional omission or concealment of a materialfact under circumstances creating an opportunity and duty tospeak." H.K. Warner v. Lucas, 185 Ill. App. 3d 351, 354 (1989). "In order to prove fraud by the intentional concealment of amaterial fact, it is necessary to show the existence of a specialor fiduciary relationship, which would raise a duty to speak." First Midwest Bank, N.A. v. Sparks, 289 Ill. App. 3d 252, 260(1997). Significantly, "in a confidential or fiduciaryrelationship, the dominant party's silence alone may constitutefraudulent concealment." Melko v. Dionisio, 219 Ill. App. 3d 1048,1061 (1991).

Partners have a fiduciary relationship. Borys v. Rudd, 207Ill. App. 3d 610, 620 (1990). Consequently, they "owe one anothera duty of full disclosure of material facts when making asettlement and obtaining a release." Golden v. McDermott, Will &Emery, 299 Ill. App. 3d 982, 988 (1998). Specifically, "thepartner assuming control of the business is obliged to manage it inthe interest of all the partners." Rizzo v. Rizzo, 3 Ill. 2d 291,302 (1954). Accordingly, an agreement between partners is subjectto close scrutiny, McCormick v. McCormick, 118 Ill. App. 3d 455,466 (1983)("A release between a trustee and a beneficiary, like alltransactions growing out of a fiduciary relationship, is subject tothe closest scrutiny"), and "no form of words, no matter how allencompassing, will foreclose scrutiny of a release [citation] orprevent a reviewing court from inquiring into surroundingcircumstances to ascertain whether it was fairly made andaccurately reflected the intention of the parties." Ainsworth, 107Ill. App. 3d at 439.

"Factors significant in determining whether a particulartransaction between parties standing in a fiduciaryrelation is fair include showing that the fiduciary hasmade a frank disclosure of all relevant information whichhe had, that the consideration was adequate, and that theother party had competent and independent advice beforecompleting the transaction." Rizzo v. Rizzo, 3 Ill. 2dat 305.

Importantly with regard to releases between partners, this courthas recognized:

"A release between fiduciaries is to be evaluated inthe context of the fiduciary relationship. [Citation.] Inappraising the validity of a release in the context of afiduciary relationship, the court must regard thedefendant as having the burden of showing by clear andconvincing evidence that the transaction embodied in therelease was just and equitable. [Citation.] In addition,the defendant must show by competent proof that a fulland frank disclosure of all relevant information was madeto the other party." Peskin v. Deutsch, 134 Ill. App. 3d48, 55 (1985).

Thus, an agreement between partners is voidable if one partnerwithheld from the other facts that were material to thetransaction. Golden, 299 Ill. App. 3d at 990.

In this case, Thornton has properly raised issues regardingthe validity of the releases. Specifically, the allegations of thecomplaint indicate that the releases may have been obtained byfraud because Follensbee, a fiduciary to Thornton, failed todisclose his continued negotiations with the PGA and Potomac. Jenner & Block has not offered any evidence that the releases wereobtained after full and frank disclosure of these facts. If infact fraud is found, the releases may not bar Thornton's claimsagainst Jenner & Block. This is true regardless of whether Jenner& Block had a fiduciary duty to Thornton with regard to thePartnership because Follensbee's actions could invalidate theentire settlement agreement and related releases. See, e.g., PhilDressler & Associates, 192 Ill. App. 3d at 584("A release may beset aside if there is fraud in the inducement."); Ainsworth, 107Ill. App. 3d at 439 ("[F]raud in the inducement vitiates allcontracts [citation] and renders [them] voidable at the option ofthe injured party").

While such a result might seem unfair to an innocent party whowas released and had no knowledge of the underlying fraud thatlater invalidated the release, we are not faced with such a casehere and our decision should not be construed to have decided sucha case. Instead, Jenner & Block was involved in the drafting ofthe releases in question and, allegedly, in the acts underlyingFollensbee's fraud. Yet, it does not answer the alleged fraud, butinstead argues that the releases are valid. The very insertion ofthe clause in the settlement agreement that purports to releasecertain fiduciary duties between Follensbee and Thornton fromOctober 1, 1994, until the date the release was signed indicates anawareness that breaches of fiduciary duties may have occurredduring that time. See Bakalis v. Bressler, 1 Ill. 2d 72, 81 (1953)quoting Selwyn & Co. v. Waller, 212 N.Y. 507, 106 N.E. 321, 322(1914)(" 'The very fact that one [partner] conceals his trueinterest from the other indicates a purpose to gain some advantageat the other's expense' "). Because Follensbee and Thornton werepartners, there was a duty to disclose these acts. See Bakalis, 1Ill. 2d 72 (holding that one partner violated his fiduciary duty toanother partner by failing to disclose his own negotiations for andactual purchase of the building in which the partnership leasedproperty). If the acts had been disclosed or were otherwise withinThornton's knowledge and Thornton had then agreed to the release,it would be binding. If, however, those acts were concealed fromThornton in violation of Follensbee's fiduciary duties, the releasemay not prevent Thornton's claims. See Peskin v. Deutsch, 134Ill. App. 3d 48, 55 (1985)(holding that a release between partnerswas not effective to bar the plaintiff partner's claim where therewas "no evidence of a full and frank disclosure to plaintiff bydefendant of the nature of the questioned payments either prior toor at the time of execution of the dissolution agreement"). Thornton has stated facts that support such a finding, and thosefacts have not been disproved or even denied by Jenner & Block. Therefore, we reverse.

We further find no merit to Jenner & Block's argument thatThornton ratified the settlement agreement, the Follensbee Release,and the Jenner & Block Release by accepting the benefits of thesedocuments. Based on the pleadings, there is still some question asto what, if anything, constitutes the benefit allegedly receivedand retained by Thornton under the settlement agreement. Regardless, even if Thornton did receive and retain some benefitfrom the settlement agreement, we believe that Thornton timelysought to invalidate the settlement agreement and the relatedreleases upon discovering the alleged fraud. The same month thathe discovered the alleged fraud, Thornton brought a claim againstFollensbee seeking to rescind the settlement agreement.

Jenner & Block urges that even if we find the releases do notbar Thornton's claims, we should affirm the dismissal of thecomplaint because it fails to state any claims upon which reliefcan be granted. We disagree.

In Illinois, a claim for aiding and abetting includes thefollowing elements:

"(1) the party whom the defendant aids must performa wrongful act which causes an injury; (2) the defendantmust be regularly aware of his role as part of theoverall or tortious activity at the time that he providesthe assistance; (3) the defendant must knowingly andsubstantially assist the principal violation." Wolf v.Liberis, 153 Ill. App. 3d 488, 496 (1987)(recognizing theelements of claims for aiding and abetting and concert ofaction but failing to find liability where there were noallegations that the codefendant agreed to assist orsubstantially assisted in the commission of tortresulting in the plaintiff's injury).

Further, the Restatement (Second) of Torts controls recovery underthe theory of concert of action in Illinois. Wolf, 153 Ill. App.3d at 496. It provides:

"For harm resulting to a third person from thetortious conduct of another, one is subject to liabilityif he

(a) does a tortious act in concert with the other orpursuant to a common design with him, or

(b) knows that the other's conduct constitutes abreach of duty and gives substantial assistance orencouragement to the other so to conduct himself, or

(c) gives substantial assistance to the other inaccomplishing a tortious result and his own conduct,separately considered, constitutes a breach of duty tothe third person." Restatement (Second) of Torts