Metropolitan Capital Bank & Trust v. Feiner , 2020 IL App (1st) 190895 ( 2020 )

2020 IL App (1st) 190895SIXTH DIVISION
September 18, 2020
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
No. 1-19-0895
METROPOLITAN CAPITAL BANK & TRUST, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. ) No. 17 L 007893
)
ZVI FEINER and HINDE FEINER, ) Honorable
) James E. Snyder,
Defendants-Appellees. ) Judge Presiding.
PRESIDING JUSTICE MIKVA delivered the judgment of the court, with opinion.
Justices Cunningham and Connors concurred in the judgment and opinion.
OPINION
¶1 In this action for common law fraud and conspiracy to defraud the lender, Metropolitan
Capital Bank & Trust (Metropolitan) alleged that one of the borrowers, defendant Zvi Feiner, made
misrepresentations in a loan underwriting process. After four defaults on a loan for which Mr.
Feiner was a guarantor, Metropolitan entered into a fifth modification of the loan, in exchange for
additional collateral represented by Mr. Feiner to be unencumbered. This modification added Mr.
Feiner as a borrower. The borrowers again defaulted, and summary judgment was entered in
Metropolitan’s favor on its breach of contract claim against them for failing to pay back the loan.
¶2 Metropolitan’s fraud and conspiracy to defraud claims against Mr. Feiner and his wife,
No. 1-19-0895
Hinde Feiner, proceeded to a bench trial. The trial court agreed with Metropolitan that Mr. Feiner
had misrepresented the status of the collateral but found that the bank failed to prove that it was
justified in relying on that misrepresentation or had suffered any damages as a result. Because
Metropolitan failed to prove fraud, its conspiracy to defraud claim against the Feiners also failed.
¶3 On appeal, Metropolitan argues that (1) the trial court incorrectly applied a clear and
convincing evidentiary standard rather than a preponderance standard to the elements of
reasonable reliance and damages, (2) Metropolitan sufficiently proved those elements under either
standard, and (3) Metropolitan also proved that the Feiners conspired to defraud Metropolitan.
¶4 For the reasons that follow, we affirm the judgment of the trial court.
¶5 I. BACKGROUND
¶6 At the time of trial, the Rosewood Facilities were comprised of 14 nursing homes and real
estate holding companies in Illinois and Missouri. YMPL Trust I (YMPL I) and YMPL Trust II
(YMPL II) had ownership interests in the Rosewood Facilities, Bravo Holding Company (Bravo)
managed their operations, and Cahill-Rosewood-II, LLC (Cahill-Rosewood-II) owned real estate
where the facilities were located. The Feiners were connected in various ways to these entities.
Ms. Feiner was the president and a 50% owner of Bravo, and Mr. Feiner owned Rosewood Propco
Manager, LLC (Rosewood Propco), the Delaware limited liability company that managed Cahill-
Rosewood-II.
¶7 In the fall of 2014, Bravo, YMPL I, and YMPL II borrowed $4.5 million from Metropolitan
to restructure Bravo’s debt on the Rosewood Facilities. The claims at issue in this appeal stem
from representations made by Mr. Feiner during the fifth and final modification to that loan, which
took place in March 2017.
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¶8 A. The Evidence at Trial
¶9 A one-day bench trial was held in this case on March 28, 2019. The trial judge heard
testimony from three witnesses—both of the Feiners and Phillip Wilson, a senior vice president at
Metropolitan and head of its Midwest region—and received into evidence all of the relevant loan
documents and underwriting materials.
¶ 10 1. History of the Loan and Its Modifications
¶ 11 As a vice president, Mr. Wilson oversaw the team of three individuals at Metropolitan
involved in underwriting the initial loan in this matter. The anticipated source of repayment was
Bravo. Mr. Feiner served as a personal guarantor, and his interest in Rosewood Propco was pledged
as collateral. The loan was modified four times between late 2015 and late 2016, each time because
Bravo was having cash flow issues and the borrowers were in default. In each instance,
Metropolitan extended the amortization schedule on the loan and reduced the monthly cash-flow
burden on the borrowers without requiring any additional collateral.
¶ 12 By early 2017, the borrowers were again delinquent in their payments. According to Mr.
Wilson, it “became clear *** that the underlying Rosewood portfolio was not performing as
expected and was not in any near term going to be able to meet the debt service requirements.”
Metropolitan was willing to accommodate the borrowers with a fifth modification that would
further ease their monthly cash-flow burden, but this time the bank wanted additional collateral.
To satisfy this requirement, on March 31, 2017, Mr. Feiner pledged his right to receive
membership distributions from two Delaware limited liability companies: FNR Norridge, LLC
(FNR Norridge) and FNR Woodview, LLC (FNR Woodview). Cash flow from this collateral was
also intended to service the loan. Metropolitan set up an account into which the distributions from
the FNR Norridge and FNR Woodview entities—which flowed through a third entity, FNR
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Healthcare, that Mr. Feiner owned and controlled outright—would be received. The plan was for
the loan payments to be deducted from the distributions and any remaining balance to be remitted
to Mr. Feiner on a monthly basis. With this modification, Mr. Feiner also became a borrower and
not just a guarantor, something his lawyer requested because it would help him pay off the loan
“without interference from his investors” and would “assist [him] in dealings with his former
partner.”
¶ 13 It soon became clear, however, that no money from the FNR Woodview or FNR Norridge
entities was flowing through FNR Healthcare into the account set up to service the loan. It was not
until July 2017, when Metropolitan was “doing its research into how [it was] going to go about
collecting this loan,” that the bank discovered that FNR Norridge had in fact already been pledged
as collateral to an entity known as SLG Limited Partnership (SLG).
¶ 14 Mr. Wilson insisted that Metropolitan would not have agreed to the fifth modification if it
had known this, stating:
“at this point we were 100 percent reliant upon those cash flow distributions to service our
debt, and we were making accommodations for the borrower to extend the amortization.
We were giving him extensions on the loan. We were doing a number of things that we
wouldn’t have done had we known that somebody could step in in front of us, and we’d be
in the exact same position we were in right now.”
¶ 15 2. How the Bank Came to Agree to a Fifth Loan Modification
¶ 16 Mr. Wilson explained that because Metropolitan offers nontraditional loans often not
secured by traditional mortgages, the bank’s loan underwriting process varies for each loan. When
Metropolitan receives a borrower’s or guarantor’s personal financial statement, it uses a
LexisNexis® tax, lien, and judgment search (TLJ search) to retrieve various documents that it uses
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to corroborate the information contained in that statement. According to Mr. Wilson, a TLJ search
can include “everything from IRS tax liens to possible residences, to, you know, a boating license,
criminal activity, things like that.” Mr. Wilson explained that Metropolitan uses those sources:
“to confirm each other in the sense that we look at tax returns to confirm what the borrower
or guarantor is saying about their cash flow; we look at the global cash flow statement, the
real estate schedule to confirm what they’re saying is the value of their real estate portfolio;
and so they all sort of go together in our underwriting to make sure that we believe that this
borrower can not only service but repay the loan eventually.”
¶ 17 Mr. Feiner’s signed 2014 personal financial statement, which he provided to Metropolitan
during underwriting for the initial loan, listed three debts owed to SLG, totaling $33.8 million
dollars, but did not indicate that an interest in the FNR Norridge entity had been pledged to SLG.
When a borrower or guarantor submits a financial statement that is not on Metropolitan’s own
form, he or she is also required to submit a personal financial statement addendum. In the
addendum submitted on July 25, 2014, Mr. Feiner responded “no” to the question “[a]re any assets
pledged other than as described on the schedules? If so, describe.” And in the “Representations
and Warranties” section, he indicated “[t]here exists no prior assignment or pledge of the pledged
collateral.”
¶ 18 Mr. Wilson testified that each time Metropolitan modifies a loan, it goes through an
additional underwriting process. He explained that procedure as follows:
“We would collect any information that was considered stale, so a personal
financial statement that was older than a year, any liquidity statements that were older than
three months or six months, any tax returns that should have been filed in the interim.
Collect any updated financials that were available, anything to understand why we
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were making a change to make an accommodation for the borrower, and to make sure that
the accommodation we were making was something that was going to be sustainable.”
¶ 19 The TLJ search Metropolitan ran on Mr. Feiner in connection with the fifth loan
modification was over 100 pages long. Nothing in the document itself revealed that Mr. Feiner had
already pledged his right to FNR Norridge distributions. The report disclosed a list of 10 active
UCC-1 filings, however, including one for SLG. Mr. Wilson explained that UCC-1 filings—forms
filed with the secretary of state when a lender accepts an interest in an LLC or some other
intangible asset as collateral for a loan—often appear in Metropolitan’s TLJ searches. According
to Mr. Wilson, it was not the bank’s practice to review each UCC-1-filing because “it’s very
common for real estate people especially to have a number of UCCs against them,” and
Metropolitan has “a number of borrowers that would produce tens if not hundreds of UCCs.”
Metropolitan would generally only review a UCC-1 listed in a TLJ search if it was “told by the
borrower or borrower’s counsel that there was already a pledge against an asset,” if “there was a
lender that showed up on the UCC schedule that didn’t show up on the borrower’s global cash
flow or on their personal financial statement,” or if it appeared on the face of the report that the
UCC-1 filing was specifically related to an asset the bank was taking pledge of.
¶ 20 Metropolitan did not retrieve any of the UCC-1 filings listed in the TLJ search it ran in
January 2017 because, according to Mr. Wilson, “[t]here were no lenders *** that stuck out as
unusual. All of these various entities appeared to show up on [Mr. Feiner’s] personal financial
statement.” If Metropolitan had pulled the UCC-1 filing for SLG, as it did later in July 2017, when
it realized there was a problem with the cash flow from the FNR Norridge entity, the bank would
have discovered, contrary to Mr. Feiner’s assertions, that SLG held a priority interest in
distributions from the FNR Norridge collateral.
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¶ 21 According to Mr. Wilson, when Metropolitan was assessing the various interests Mr.
Feiner might be able to pledge as security for the fifth loan modification, the bank proposed a
collateral structure that included Mr. Feiner’s cash flow from a third entity called FNR Vermillion.
In an e-mail dated January 30, 2017, however, Mr. Feiner told the bank, “Vermillion is a problem
and cannot be pledged at this time.” Mr. Wilson understood this to mean “Vermillion either is
pledged or cannot be pledged because of some partnership issue.” But Mr. Feiner further wrote,
“Norridge and Woodview are free and clear and can be pledged, and the cash flows are fine.”
According to Mr. Wilson, Mr. Feiner never explained why FNR Vermillion was a problem or who
it was pledged to. Nor did he indicate that there was any problem with him pledging his distribution
rights in FNR Woodview or FNR Norridge. Mr. Feiner represented that the income from those
two entities was “stable and monthly.”
¶ 22 When asked at trial about the misrepresentations in his personal financial statements, Mr.
Feiner testified that his lawyer told him to sign the documents, so he did, without reviewing them.
He blamed Metropolitan for being in a rush to complete the loan restructuring, stating: “The bank
was providing a great deal of pressure on me and my attorney to get something signed by the end
of the quarter, March 31st, because they had to answer to the regulators, and they needed
something done so the loan would not remain in default.” Mr. Feiner acknowledged, however, that
he was aware that Bravo and the two YMPL Trusts were in default on the fourth loan modification
before he signed on as an additional borrower to the fifth modification and that, as the guarantor
on the loan up to that point, he would have been responsible for that default if the parties had not
been able to agree on the terms of a fifth modification.
¶ 23 Mr. Wilson acknowledged on cross-examination that Metropolitan did not have Mr.
Feiner’s 2016 tax return at the time of the underwriting and Metropolitan “relied upon his oral
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statement, his written statement, his attorney’s written statement, [and] the financials of the
underlying properties that were provided by him” for information related to how much Mr. Feiner
received in 2016 and 2015 as distributions from FNR Norridge and FNR Woodview. Mr. Wilson
could not recall which documents the bank requested as part of its due diligence but, to the best of
his knowledge, Metropolitan did not receive the FNR Norridge 2016 or 2015 tax returns prior to
executing the March 31, 2017, loan modification.
¶ 24 Mr. Wilson agreed as a general principle that “the level of concern of the bank would be
greater when [a] loan is in default,” but when asked if this would have prompted the bank “to do
more rather than less investigation into the status” of the pledged collateral in this matter, he said,
“[w]e didn’t do any more or less. We did the exact same that we normally do.”
¶ 25 3. Hinde Feiner’s Role
¶ 26 Ms. Feiner testified that she was president and director of Bravo but that she held those
titles without actually performing the duties of a president or director and indeed knew nothing
about the operations of the company. She described herself as “a stay-at-home mom with five
kids.” Ms. Feiner further explained that she gave her attorney and her husband authorization to
sign any documents on her behalf, regardless of any legal obligation she would incur as a result,
without first reviewing the documents. Ms. Feiner estimated that since approximately 2013, she
had made legal obligations on behalf of 10 to 15 different companies by signing or allowing
various documents to be signed with her name. As the president of Bravo, she signed the third loan
modification in March 2016. Ms. Feiner admitted that she did not review the loan documents
before signing. The fourth loan modification, made in October 2016, bore Ms. Feiner’s signature
but she testified that she had not actually signed it. Ms. Feiner signed the fifth loan modification
and revised promissory note as the president of Bravo, despite the fact that she had no
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communications with any representative of Metropolitan over the telephone, in person, or through
e-mail and had again failed to review the documents before signing them. By way of explanation,
Ms. Feiner merely stated that she had been “[y]oung and dumb.”
¶ 27 B. Closing Arguments and the Trial Court’s Findings
¶ 28 In his closing argument, counsel for Metropolitan argued that the bank took the
“reasonable” efforts that it needed to in order to protect its interest, stating:
“Metropolitan undertook its due diligence process and followed its procedures.
Could the bank have found the UCC if it overturned everything? Sure. I don’t believe the
law requires it. The law only requires a reasonable effort to look into the—to look into the
statements that were made.
As Mr. Wilson testified, he relied on both the written and oral statements of Mr.
Feiner, he relied on the written and oral statements of Mr. Feiner’s lawyer, and he relied
on the fact that there’s nothing untoward or surprising in the searches that they ran on Mr.
Feiner’s background when they were doing the extension of the fifth modification.”
¶ 29 In response, counsel for the Feiners argued that Metropolitan had not met its burden of
proving each of the elements of fraud by clear and convincing evidence. At the time of Mr. Feiner’s
representations, the bank had already entered into four loan modifications as a result of “substantial
financial defaults for nonpayment” and its due diligence had uncovered a list of 10 UCC-1 filings
with corresponding file numbers, but “the bank did nothing to pull the UCCs.” Counsel argued
that, while under other circumstances it might have been reasonable for Metropolitan to look no
further than documentation provided by the borrower, given the particular circumstances of this
loan’s history, the bank should at least have reviewed the UCC-1 filings that were flagged in its
report.
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¶ 30 The trial court entered judgment in favor of the Feiners on Metropolitan’s claims for fraud
and conspiracy to defraud. The judge believed that Metropolitan had “certainly proved that the
defendant, Mr. Feiner, made material misrepresentations of fact in this loan transaction process”
regarding “the Norridge entity.” Indeed, the trial court judge noted that he did not find Mr. Feiner
to be a credible witness and “was more than a little surprised at the occasions on which he thought
that things were laughable and he laughed while testifying.”
¶ 31 The court nevertheless concluded that the bank had failed to prove justifiable reliance and
a corresponding theory of damages by clear and convincing evidence. The judge explained that
this conclusion was based on the credible testimony of Mr. Wilson “that the nature of
[Metropolitan’s] business is to make nonconventional and non usual [sic] loans; and that in this
circumstance [the bank] was going into a fifth modification where [it] knew that the [borrower]
was in default,” and yet it still failed to follow up on the UCC reports that would have demonstrated
the pledged collateral was encumbered. In the trial court’s view, Metropolitan “certainly should
have chased down this UCC, this SLG UCC, and that is frankly what dooms the plaintiff’s case in
that regard.” Because Metropolitan failed to prove fraud, the trial court concluded that its claim
for conspiracy to defraud failed as well.
¶ 32 Metropolitan now appeals the court’s finding as to both counts.
¶ 33 II. JURISDICTION
¶ 34 The circuit court entered its final judgment on March 28, 2019, and Metropolitan timely
filed its amended notice of appeal on April 26, 2019. This court has jurisdiction pursuant to Illinois
Supreme Court Rules 301 (eff. Feb. 1, 1994) and 303 (eff. July 1, 2017), governing appeals from
final judgments entered by the circuit court in civil cases.
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¶ 35 III. ANALYSIS
¶ 36 On appeal, Metropolitan argues the trial court erred by (1) applying a clear and convincing
evidentiary standard to the reasonable reliance and damages elements of fraud, (2) concluding that
Metropolitan failed to prove either of those elements, and (3) additionally concluding that
Metropolitan failed to prove that the Feiners conspired to conceal Mr. Feiner’s misrepresentations.
We address each issue in turn.
¶ 37 A. Evidentiary Standard
¶ 38 The elements of common law fraud are
“(1) [a] false statement of material fact (2) known or believed to be false by the party
making it; (3) intent to induce the other party to act; (4) action by the other party in
[justifiable] reliance on the truth of the statement; and (5) damage to the other party
resulting from such reliance.” (Internal quotation marks omitted.) Gerill Corp. v. Jack L.
Hargrove Builders, Inc., 128 Ill. 2d 179, 193 (1989).
¶ 39 At summary judgment, the Feiners cited the clear and convincing evidentiary burden for
proving each of the elements of common law fraud. To prove something by clear and convincing
evidence, a plaintiff must “leave[ ] no reasonable doubt in the mind of the trier of fact as to the
truth of the proposition in question.” Parsons v. Winter, 142 Ill. App. 3d 354, 359 (1986). Clear
and convincing evidence is considered “to be more than a preponderance while not quite
approaching the degree of proof necessary to convict a person of a criminal offense.” Id.Metropolitan did not dispute that this was the standard, and in fact did not specifically address the
evidentiary standard at all in its own pretrial filings. At the conclusion of the bench trial, the trial
judge without comment applied the clear and convincing evidentiary standard to each of the
elements of Metropolitan’s fraud claim. Metropolitan now argues that it only needed to prove the
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last two elements of its claim for common law fraud—reasonable reliance and damages—by a
preponderance of the evidence. To prove something by a preponderance of the evidence, a plaintiff
need only show it is “probably true.” Id. The Feiners, on the other hand, maintain that the court
was correct in requiring proof of each element by clear and convincing evidence. Whether the
court applied the correct legal standard to the evidence presented is a question of law we review
de novo. In re Marriage of Sobol, 342 Ill. App. 3d 623, 627 (2003).
¶ 40 There is certainly support for each side’s position. Arguing for a split standard of proof,
Metropolitan relies on Parsons, 142 Ill. App. 3d at 359, which in turn relied on Gordon v. Dolin,
105 Ill. App. 3d 319, 324 (1982), for the proposition that a plaintiff must “prove the first four
elements [of common law fraud] by direct or circumstantial evidence that is clear and convincing.”
Those elements—“(1) that the defendant made a statement, (2) of a material nature as opposed to
opinion, (3) untrue, (4) known by the person making it to be untrue, believed by him to be untrue,
or made in culpable ignorance of its truth or falsity” (Parsons, 142 Ill. App. 3d at 359; Gordon,
105 Ill. App. 3d at 324)—correspond to the first two elements of the cause of action, as they were
later restated by our supreme court in Gerill. Gerill, 128 Ill. 2d at 193. Under this line of cases, it
would seem that the remaining elements—justifiable reliance and damages—need only be proved
by a preponderance of the evidence. In conflict with these cases, and supporting a unified standard
of proof, is Cole v. Ignatius, 114 Ill. App. 3d 66, 74 (1983), which relied on National Republic
Bank of Chicago v. National Homes Construction Corp., 63 Ill. App. 3d 920, 924 (1978), for the
proposition that “[p]roof of each element in an action for fraud must be clear and convincing.”
(Emphasis added.)
¶ 41 This is indeed an unusual circumstance in which two alternative Illinois Pattern Jury
Instructions exist that are completely at odds with one another. Compare Illinois Pattern Jury
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Instructions, Civil, No. 800.02A (approved July 18, 2014) (hereinafter IPI Civil No. 800.02A)
(aligning with Parsons and Gordon) and IPI Civil No. 800.02B (aligning with Cole and National
Republic); see also Napcor Corp. v. JPMorgan Chase Bank, NA, 406 Ill. App. 3d 146, 157 (2010)
(noting that both instructions find support under prevailing law).
¶ 42 Having considered these authorities, we are not persuaded that the trial court applied the
wrong standard in this case. Interestingly, as support for the diverging standards they announced,
Gordon and National Republic both relied on the same authority: our supreme court’s 1941
decision in Racine Fuel Co. v. Rawlins, 377 Ill. 375 (1941). The plaintiff in Racine alleged that
the defendant and another individual conspired to defraud it out of a portion of the purchase price
of coal. Id. at 377. The court noted that “transactions are presumed to be fair and honest until the
contrary is proved by clear and convincing evidence,” “[f]raud is not presumed but must be proved
like any other fact by clear and convincing evidence,” and “[i]t is not sufficient that there be mere
suspicion of fraud but fraud, if it exists, must be satisfactorily shown.” Id. at 379-80. The court
then concluded that in support of a claim of fraud, as opposed to “an action merely for recovery of
balance on account,” the evidence presented at trial had been insufficient. Id. Nowhere in its
decision did the Racine court list the elements of a claim of fraud, differentiate between standards
of proof necessary to establish each of those elements, or even mention the element of justifiable
reliance.
¶ 43 Racine stands for the unremarkable proposition that fraud claims are held to a higher
evidentiary standard. That is as true today as it was in 1941. In Avery v. State Farm Mutual
Automobile Insurance Co., 216 Ill. 2d 100, 191 (2005), our supreme court, citing Racine, reiterated
that “the law presumes that transactions are fair and honest” and “fraud is not presumed.” This is
why claims of common law fraud constitute an exception to the general rule in civil cases—where
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there are “no sound reasons for favoring one party over another”—that “the party with the burden
of persuasion must prove his or her case by a preponderance of the evidence.” Id. While Avery
recognized that “[o]ccaisionally *** policy considerations require a court to impose a higher
standard of proof,” it noted that, in such cases, “the party with the burden of persuasion must prove
his or her case by clear and convincing evidence,” not certain elements of his or her case.
(Emphasis added.) Id. Although Gordon was cited by the Avery court, it was only for the
proposition that “in a common law fraud action, the plaintiff carries ‘a heavy responsibility’ ” (id.
at 192 (quoting Gordon, 105 Ill. App. 3d at 324)), not as an endorsement of the split standard of
proof articulated in that case. In sum, we read nothing in Racine, Avery, or any other controlling
authority supporting a split standard of proof, pursuant to which some—but not all—of the
elements of a claim of fraud are subject to a heightened standard. Historic concerns raised by
Metropolitan, regarding which elements of the cause of action bear on “the character of the
wrongdoer” and which do not, strike us as outdated. Such concerns certainly pale, in our view, in
comparison to the difficulties trial courts would face in applying two standards of proof to the
elements of a single cause of action.
¶ 44 In sum, we cannot say that the trial court in this case—faced with two diverging lines of
first district cases on an issue our supreme court has not specifically addressed—made a reversible
error of law by applying the line of cases finding that each of the elements of common law fraud
must be proved by clear and convincing evidence. Finding no error, we next consider whether,
under this standard, the trial court’s finding that Metropolitan failed to prove it justifiably relied
on Mr. Feiner’s misrepresentations was against the manifest weight of the evidence.
¶ 45 B. Reasonable Reliance
¶ 46 “When, as in this case, a party challenges the sufficiency of the evidence to support a
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judgment following a bench trial, our standard of review is whether the trial court’s judgment is
against the manifest weight of the evidence.” Kroot v. Chan, 2017 IL App (1st) 162315, ¶ 19. This
is a deferential standard, under which “[a] reviewing court will not substitute its judgment for that
of the trial court regarding the credibility of witnesses, the weight to be given to the evidence, or
the inferences to be drawn.” Offord v. Fitness International, LLC, 2015 IL App (1st) 150879, ¶ 16.
Accordingly, “[a] finding is against the manifest weight of the evidence only if the opposite
conclusion is clearly evident or if the finding itself is unreasonable, arbitrary, or not based on the
evidence presented.” Id.¶ 47 Metropolitan concedes that it “was required to take reasonable efforts to determine the
veracity of [Mr.] Feiner’s statements,” but insists that it was “not required [to] make every
conceivable effort to uncover and ferret out [his] multi-year fraud.” In determining what
constitutes justifiable reliance—a phrase used interchangeably with “reasonable reliance” (see,
e.g., Ringgold Capital IV, LLC v. Finley, 2013 IL App (1st) 121702, ¶ 37)—in a given case, “courts
consider all of the circumstances surrounding the transaction, including the parties’ relative
knowledge of the facts available, opportunity to investigate the facts and prior business
experience.” Hassan v. Yusuf, 408 Ill. App. 3d 327, 350 (2011). This includes not only those facts
actually known to the plaintiff but also “those facts [the] plaintiff could have learned through the
exercise of ordinary prudence.” Ringgold Capital, 2013 IL App (1st) 121702, ¶ 37. Our supreme
court has explained that “one is justified in relying upon the representations of another, without
independent investigation, where the person to whom the representations are made does not have
the same ability to discover the truth as the person making the representations.” Gerill, 128 Ill. 2d
at 195. Where parties “have equal knowledge or means of obtaining knowledge of the
misrepresented facts,” a plaintiff’s reliance on a defendant’s material misrepresentation is only
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justifiable where the defendant “has created a false sense of security or blocked further inquiry,”
and where “the facts were not such as to put a reasonable person on inquiry.” Hassan, 408 Ill. App.
3d at 350.
¶ 48 This is an incredibly fact-specific inquiry for which it is helpful to consider some examples.
In Gerill, 128 Ill. 2d at 184, two parties formed a joint venture to develop land but, after a few
years, decided the project was not sustainable and began exploring the idea of a buyout. The
defendant, who had been in charge of the operation’s finances, drew up a list of the venture’s
outstanding loans and open invoices. Id. Based on this financial information, a contract was drawn
up and arrangements were made for the defendant’s interest in the venture to be purchased by a
third party, who agreed to indemnify the defendant from any outstanding liabilities. Id. at 185. The
third party subsequently hired an independent accountant to review the records and discovered that
the joint venture’s liabilities were far greater than the defendant had represented. Id. at 185-86.
Our supreme court held that, as to $800,000 of the $1.1 million dollars in excess liabilities claimed,
the third party’s reliance on the misrepresentations was unjustified because “through reasonable
and prudent diligence,” he could himself have discovered the existence of the taxes, mortgages,
and loans. Id. at 194. The court allowed for recovery of construction costs, however, because
information regarding construction work and supplies “were matters almost exclusively within the
knowledge of [the defendant] and it would have been difficult, if not impossible, for [the third-
party purchaser] to discover them.” Id. at 194-95.
¶ 49 In Hassan, 408 Ill. App. 3d at 329, the plaintiff entered into an agreement with two
defendants to purchase a gas station, under which the parties were to contribute equally, share
equally in the profit, and use the proceeds to pay the mortgage. Id. at 343-44. Although the
defendants represented to the plaintiff that he would be a one-third owner of the gas station,
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including the underlying real estate, title was instead conveyed to a corporation owned only by the
defendants. Id. This court held that there was sufficient evidence in the record to support the trial
court’s finding that the plaintiff justifiably relied on the defendants’ representations “without
further inquiry or investigations” because (1) the plaintiff “was relatively new to this country when
he entered into [the] business transaction,” (2) the plaintiff trusted the defendants as a result of
their longstanding friendship, (3) the plaintiff knew the defendants had experience with owning
and operating a gas station, and (4) “the evidence [did] not appear to suggest that [the] plaintiff
had a reason to suspect that he may not have an ownership in the real estate because he paid the
mortgage on behalf of [the corporation owned by the defendants] as a form of rent.” Id. at 351-52.
¶ 50 Here, the trial judge found Mr. Feiner’s testimony unreliable and felt that Metropolitan
proved that he had made material misrepresentations regarding his rights in the FNR Norridge
collateral. However, based on the evidence introduced at trial, the court found Metropolitan failed
to prove that it was justified in relying on those misrepresentations. With regard to this finding,
the trial court explained “that on January 12th, 2017, *** the [bank] received the UCC report
regarding the borrower. There is a list and a reference by line number on it to the SLG UCC
statement, which easily could have been identified.” Because publicly filed information
contradicting Mr. Feiner’s representations regarding the Norridge collateral was readily available
to Metropolitan, the court concluded that the bank could not have reasonably relied on Mr. Feiner’s
assurances that the collateral was unencumbered.
¶ 51 Unlike in Hassan, Metropolitan had reason to follow up on Mr. Feiner’s representations.
The borrowers had continually been unable to make their loan payments after representing an
ability to pay with each modification, and, as Mr. Wilson said, provision of this additional
collateral was key to Metropolitan’s decision to enter into a fifth loan modification. Unlike with
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the construction expenditures in Gerill, information regarding the UCC-1 filing was not
exclusively within Mr. Feiner’s knowledge or something that it would have been difficult for
Metropolitan to discover. The trial court’s determination that the bank should have conducted at
least some investigation into Mr. Feiner’s representations was not against the manifest weight of
the evidence.
¶ 52 Cases Metropolitan relies on, in which the defendants actively created a false sense of
security or blocked investigation into the nature of their misstatements, simply do not apply here.
In Mother Earth, Ltd. v. Strawberry Camel, Ltd., 72 Ill. App. 3d 37, 40-41 (1979), a defendant
selling a nightclub falsely represented the club yielded monthly profits of $10,000. Because the
statement was not “inherently implausible,” and because the seller “inhibited” the purchasers’
inquiries “by telling them that the business’ books were unavailable,” the court held reliance on
this misrepresentation was reasonable without the purchasers “[t]ak[ing] such steps as monitoring
the business in order to test the accuracy of this statement.” Id. at 51-52. Similarly, in Carter v.
Mueller, 120 Ill. App. 3d 314, 320 (1983), the plaintiff failed to inspect an apartment before signing
the lease. Because the defendant had “precluded investigation” by lying and saying a key was not
available to unlock and inspect the apartment and had falsely reassured the plaintiff that
“ ‘everything had been done,’ ” the appellate court ruled the trial court’s finding that reliance was
not reasonable was against the manifest weight of the evidence. Id. The court noted that “where
the person making the statement has inhibited [the] plaintiff’s inquiries by either creating a false
sense of security or blocking investigation, the failure to inquire is not fatal” Id. at 319. Here, there
is no evidence that Mr. Feiner blocked Metropolitan’s investigation, nor does Metropolitan make
such a claim.
¶ 53 Metropolitan also cites Mother Earth, 72 Ill. App. 3d at 52, for the proposition that even if
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the plaintiff in an action for fraud was negligent for failing to insist on verification of an alleged
misrepresentation, fraud is “an intentional tort, and it is well settled that an action for an intentional
tort cannot be defeated by an assertion of negligence on the part of the plaintiff.” This court has
held, however, that this rule “is qualified in that the defrauded party must first show he had a right
to rely on the misrepresentations.” Smith v. Ethell, 144 Ill. App. 3d 171, 175 (1986). We have
similarly qualified the proposition, for which Metropolitan relies on the Restatement (Second) of
Torts § 540 cmt. a, Illustration 1 (1977), that a fraudulent misrepresentation may be relied on even
when its falsity could be discovered without considerable trouble or expense by reviewing public
records. See Chicago Title & Trust Co. v. First Arlington National Bank, 118 Ill. App. 3d 401, 409
(1983) (stating that this too, “of course, does not obviate the requirement that [the] plaintiff’s
reliance must be justifiable” and noting the tendency for courts to resolve the tension between the
disparate lines of cases concerning justifiable reliance on a case-by-case basis).
¶ 54 Here, there is support in the record for the trial court’s determination that, following the
borrowers’ fourth default, Metropolitan, as a sophisticated lender specializing in nontraditional
loans requiring personal guarantees, should not have simply relied on Mr. Feiner’s representations
regarding the status of the pledged collateral. Unlike in Mother Earth, there was no impediment to
Metropolitan’s investigation. According to Mr. Wilson’s testimony, Metropolitan ran another TLJ
search in July 2017 to determine how the bank might collect on the loan and was able to find the
UCC-1 filed against the collateral and discover the encumbrance. Given all of the circumstances
surrounding this loan and the parties’ relationship, the trial court’s determination that such a search
was not onerous and should have been performed by Metropolitan in this case is supported by the
record. The court’s finding that Metropolitan failed to prove by clear and convincing evidence that
it was justified in relying on Mr. Feiner’s misrepresentations was not against the manifest weight
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of the evidence.
¶ 55 C. The Remaining Issues on Appeal
¶ 56 We need not consider the sufficiency of the evidence with regard to damages because we
affirm the trial court’s finding that Metropolitan failed to prove it justifiably relied on Mr. Feiner’s
false statements. And because, as Metropolitan concedes, “conspiracy is not an independent tort”
and “fails if the independent cause of action underlying the conspiracy allegation fails” (Coghlan
v. Beck, 2013 IL App (1st) 120891, ¶ 59), the court’s judgment in favor of the Feiners on the bank’s
conspiracy to defraud claim is also affirmed.
¶ 57 IV. CONCLUSION
¶ 58 For all of the above reasons, we affirm the judgment of the trial court in favor of the Feiners
on Metropolitan’s fraud and conspiracy to defraud claims.
¶ 59 Affirmed.
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No. 1-19-0895
Cite as: Metropolitan Capital Bank & Trust v. Feiner, 2020 IL App
(1st) 190895Decision Under Review: Appeal from the Circuit Court of Cook County, No. 17-L-
007893; the Hon. James E. Snyder, Judge, presiding.
Attorneys Joseph W. Barber and Ariane M. Janz, of Howard & Howard
for Attorneys PLLC, of Chicago, for appellant.
Appellant:
Attorneys Ariel Weissberg and Frank Lara, of Weissberg & Associates,
for Ltd., of Chicago, for appellees.
Appellee:
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