Kastl v. Associated Bank National Association

2023 IL App (1st) 221403-UOrder filed: August 3, 2023
FIRST DISTRICT
FOURTH DIVISION
No. 1-22-1403
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the
limited circumstances allowed under Rule 23(e)(1).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
______________________________________________________________________________
JOHN KASTL, RASHILA KASTL, ) Appeal from the
STEVEN KASTL and ANGELA KASTL, ) Circuit Court of
) Cook County
Plaintiffs-Appellants, )
)
v. ) No. 2018 L 486
)
ASSOCIATED BANK NATIONAL )
ASSOCIATION and 1st EXECUTIVE )
APPRAISAL SERVICES, LLC, ) Honorable
) Patrick J. Sherlock,
Defendants-Appellees. ) Judge, presiding.
______________________________________________________________________________
JUSTICE ROCHFORD delivered the judgment of the court.
Justices Hoffman and Martin concurred in the judgment.
ORDER
¶1 Held: We affirmed the grant of summary judgment for the defendant Bank on plaintiffs’
Consumer Fraud Act count. We reversed and remanded the grant of summary
judgment for the Bank on plaintiffs’ negligent misrepresentation count. We
reversed and remanded the denial of plaintiffs’ motion to reconsider the denial of
leave to file a third amended complaint alleging negligent misrepresentation against
co-defendant First Executive.
No. 1-22-1403
¶2 Plaintiffs, John Kastl, Rashila Kastl, Steven Kastl and Angela Kastl, appeal the order
granting summary judgment for defendant, Associated Bank National Association, on plaintiffs’
third amended complaint for negligent misrepresentation and breach of the Consumer Fraud and
Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2 (West 2020)). Plaintiffs
also appeal the order denying their motion to reconsider the order denying them leave to file a third
amended complaint alleging negligent misrepresentation against co-defendant 1st Executive
Appraisal Services, LLC. We affirm the grant of summary judgment for the Bank on plaintiffs’
Consumer Fraud Act claim; reverse the grant of summary judgment for the Bank on plaintiffs’
negligent misrepresentation claim; reverse the denial of plaintiffs’ motion to reconsider the order
denying them leave to file a third amended complaint against 1st Executive; and remand for further
proceedings.
¶3 Plaintiffs filed an amended complaint alleging that in October 2013, they met with Bank
employee Ed Currie to discuss the possibility of obtaining a home construction loan. Currie
explained to them that during the construction process, the loan funds would be held by Chicago
Title in an escrow account. Periodically, plaintiffs’ builder would submit draw requests on their
Bank loan. Plaintiffs would review and sign the draw requests, after which the Bank would order
an inspector to review whether the builder had performed the necessary work to justify the
requested draw. After the inspector certified that the necessary work had been completed, the Bank
would authorize Chicago Title to release the funds. Rashila Kastl filed an affidavit attesting to this
conversation with Currie.
¶4 Plaintiffs subsequently entered into a construction contract with Greenview Builders to
construct their new home (the Project) for $879,500 at 570 Jackson Avenue. Plaintiffs paid
$175,900 directly to Greenview. The remainder of the Project and the purchase of the lot was
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funded by a loan by the Bank, evidenced by a mortgage and promissory note in the amount of
$1,245,650.
¶5 At the closing on December 11, 2013, John and Steven Kastl, by Rashila Kastl as their
attorney-in-fact, entered into a construction escrow agreement with the Bank and Chicago Title.
The escrow agreement was directed to the attention of the “Escrow Department” and stated:
“You are hereby authorized to enter upon the premises to conduct inspections on behalf of
the lender for the purpose of determining whether payment to the general contractor is
warranted. It is understood that the inspections which you may conduct are for the direct
benefit of the lender only, their purpose being to assure lender that the stage of construction
substantially justifies payment to the general contractor and substantially complies with the
plans and specifications submitted to you. [Plaintiffs] acknowledge that it will be their
responsibility to assure themselves that the quality of workmanship and material is
satisfactory, and that the home is buil[t] in accordance with plans and specifications, and
[plaintiffs] further acknowledge and agree that it is not your obligation to make any
assurances to them as to the quality of workmanship and materials and that you have no
liability to them for any alleged defect or defects in said quality or for any failure to
complete the home in accordance with plans and specifications.”
¶6 John and Steven Kastl, by Rashila Kastl as their attorney-in-fact, also entered into a
disbursement agreement with the Bank and Chicago Title. The disbursement agreement stated that
prior to each disbursement of funds by Chicago Title, plaintiffs shall furnish it with: a sworn
owner’s statement and a sworn statement by the general contractor disclosing the various contracts
entered into relating to the construction of the home; sufficient funds to cover the current
disbursement request; written approval by plaintiffs of Chicago Title’s payment of the current
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construction draw; a report by the inspector certifying that work has been completed and materials
are in place as indicated by the current construction draw request; and statements, waivers,
affidavits, and releases of lien from such persons and in such form as may be required by Chicago
Title for the purpose of providing the title insurance coverage.
¶7 Plaintiffs pleaded that during the closing, the Bank demanded that they pay $900 to perform
the required inspections and informed them that “No draws would be approved until an inspection
is done.” Plaintiffs paid the $900. Rashila Kastl also attested in her affidavit that “[i]n reliance on
the Bank’s assurance that Project inspection reports showing adequate completion of the Project
would be completed by the Bank before any draws on our loan with the Bank were paid out, we
agreed to and did pay the Bank $900 at closing to perform the Property inspections prior to
disbursement of construction draws.”
¶8 After the closing, the Bank sent plaintiffs a document entitled “Construction Draws
Procedures and Policies,” stating that plaintiffs were responsible for providing signed
authorizations of the general contractor’s draw requests. Once the signed authorization and other
necessary paperwork are received, Chicago Title will “complete a construction draw disbursement
request and send it to Associated Bank, Contract Servicing. Upon receipt of the completed
inspection and the completed draw request, Contract Servicing will review the information, verify
the draw can be completed and disburse accordingly.”
¶9 The Construction Draws Procedures and Policies further stated:
“Percentage amount drawn after disbursement of each draw should be in line with
percentage complete as determined by the inspection. For an example if a total construction
contract is for $300,000 and $150,000 will have been drawn after the draw in question is
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made, the corresponding inspection report should indicate that 50% or more of the total
project is complete.”
¶ 10 Plaintiffs pleaded that because they had no experience with construction or inspecting
home construction, they trusted the Bank to conduct the inspections and to perform them properly.
¶ 11 During construction, plaintiffs approved four draws from Greenview: (1) Rashila executed
a sworn owner’s statement for $74,047 (the first draw) on September 11, 2014; (2) John executed
a sworn owner’s statement for $123,664.46 (the second draw) on January 20, 2015; (3) Rashila
executed a sworn owner’s statement for $120,200 (the third draw) on February 27, 2015; and (4)
Rashila executed a sworn owner’s statement for $101,000 (the fourth draw) on April 24, 2015.
Plaintiffs’ complaint is based on the second and third draws only.
¶ 12 To conduct its inspections of the Property, the Bank hired 1st Executive Appraisal Services.
With respect to the second draw, on January 21, 2015, Lynne Zaehler, a “team lead” of the Bank’s
mortgage group, emailed 1st Executive a request to conduct an inspection report of the Property.
¶ 13 On January 26, 2015, 1st Executive sent the Bank its completed inspection report, which
stated, “The subject property was inspected on 01/26/2015” and that “[a]s of the date of the
inspection, the subject property is approximately 29% complete.” The inspection report further
stated that its purpose was “to provide the lender/client with an accurate update of an appraisal
and/or to report a certification of completion.” Its “intended use” was “for the lender/client to
evaluate the property that is the subject of this report to determine if the property has declined in
value since the date of the original appraisal for a mortgage finance transaction.”
¶ 14 On January 27, 2015, the Bank sent 1st Executive a check for an “Inspection Fee” of $125
from plaintiffs’ escrow account. Also on January 27, 2015, Teresa Haga, a Bank employee, sent
Chicago Title a document entitled “Certificate As To Completion” stating: “The undersigned
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hereby certifies that all work for which payment is requested *** in the amount of 123664.76 has
been satisfactorily completed and all materials are in place.” The Certificate As To Completion
was signed and dated by Haga.
¶ 15 John Kastl submitted an affidavit stating that “In January 2015, the Kastls (through their
agent Chicago Title) paid Greenview out of our bank loan its requested draw of $123,664.76 in
reliance on the Bank’s Certificate As To Completion.”
¶ 16 For the third draw request a month later, the Bank again emailed 1st Executive its
inspection request. On March 4, 2015, 1st Executive sent the Bank its completed inspection report,
which stated that as of the date of the inspection on March 3, 2015, “the subject property is
approximately 36% complete.” The inspection report again stated that its purpose was to provide
the lender/client with an accurate update of an appraisal and/or to report a certificate of completion
and was intended to be used by the lender/client to determine if the property had declined in value
since the date of the original appraisal.
¶ 17 On March 5, 2015, the Bank sent 1st Executive a check for an “Inspection Fee” of $125
from plaintiffs’ escrow account. Also on March 5, 2015, Haga sent Chicago Title a signed,
Certificate As To Completion stating that she certified that all work for which Greenview
requested payment of $120,200 “has been satisfactorily completed and all materials are in place.”
John Kastl attested in his affidavit that Chicago Title paid Greenview’s requested draw “in reliance
on [the] Bank’s Certificate As To Completion.”
¶ 18 Rashila Kastl testified at her deposition that in April 2015, she and her husband John were
renting a house two miles away from the Property. She drove by the Property every day and noticed
that, starting at the end of March or early April, the subcontractors had stopped performing work.
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Alan Langsam, Greenview’s project controller and CFO, testified in his deposition that around this
time, Greenview ran out of funds to make payroll and ceased performing construction work.
¶ 19 In late April 2015, Chicago Title declined Greenview’s fourth draw request because there
were insufficient funds left on the loan to finish the construction.
¶ 20 Rashila attested in her affidavit that plaintiffs repeatedly talked with the Bank and with
Greenview over the next few weeks to try and find out the problem. The Bank told plaintiffs that
Greenview merely had to adjust its accounting procedures. Greenview told plaintiffs that “they
were confused because the Bank had changed the way these [draw] requests were being approved.”
¶ 21 Rashila further attested that on May 15, 2015, plaintiffs talked with Currie about their
options to continue building on the Property. Currie suggested that plaintiffs could work with a
different builder, but that they would have to go through a refinancing process that could take up
to 45 days to complete. Plaintiffs responded that they wanted Greenview to complete the project
because they had a fixed-price contract with Greenview “lower than other builders.” Plaintiffs also
wanted to avoid the 45-day delay in refinancing with a new builder. Currie responded that “if the
Bank received certain documents from Greenview then the Bank could approve a new loan amount
with Greenview and get the financing started.”
¶ 22 Meanwhile, in June 2015, Steven Opichka, a senior Director of Operations with the Bank’s
residential lending department, sent Scott Stiverson, a Bank employee, an email relating how the
Bank had worked with Greenview since 2009 and currently had 17 construction loans with
Greenview as the builder of homes in various stages of completion. The Bank recently had learned
that Greenview engaged in the practice of underbidding on projects and thus the cost of completing
the construction of the 17 homes will be more costly than the Bank originally had anticipated.
Stiverson replied with an email also informing that Greenview had been caught underbidding on
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projects and engaging in “fraud.” Anita Fehler, a Vice President in the Bank’s residential lending
department, sent an email to Opichka and other Bank employees on June 30, 2015, stating that
when refinancing construction loans involving Greenview, the Bank should recommend that the
borrower “remove” Greenview “from the transaction” and enter into a contract with a new builder.
Fehler subsequently filed an affidavit attesting:
“It is the Bank’s policy, and it was the Bank’s policy from 2013 to 2015, that the Bank
does not advise its customers on what general contractors its customers may or may not
utilize in connection with their residential construction projects. At no time did the Bank
adopt any policy (a) which would prohibit a customer from utilizing Greenview as his or
her general contractor, or (b) pursuant to which the Bank would refuse to evaluate a
customer’s loan or loan refinance application if the general contractor chosen by the
customer was Greenview.”
¶ 23 Rashila attested that throughout June and July 2015, plaintiffs provided the Bank with all
requested documents for the refinancing of their loan, but heard nothing back from the Bank. In
her deposition testimony, Rashida stated that she was not certain whether she personally sent the
Bank all the requested documents, but she was confident that the Bank had received them all
because Currie’s supervisor, John Horton, never told her otherwise. Plaintiffs met with some other
builders and learned that there would be a $300,000 cost increase to complete construction of the
Project, regardless of whether they retained Greenview or hired one of the other builders.
¶ 24 Rashila attested that on July 8, 2015, she spoke with Horton, who told her that “staying
with Greenview is totally up to you. If that is something you wish to do, we will be happy to work
with you going forward.” Neither Horton nor anyone else from the Bank informed plaintiffs about
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Greenview’s suspected fraud or about the Bank’s preference for refinancing construction loans to
remove Greenview as the general contractor.
¶ 25 In reliance on the Bank’s promises that it would consider refinancing a new loan allowing
them to retain Greenview as general contractor, plaintiffs delayed obtaining financing to complete
construction with a new builder. Rashida testified in her deposition that in August 2015, plaintiffs
finally decided to hire a new builder because they “could not get any answer from the Bank” as to
whether it would allow them to refinance their loan so as to retain Greenview. Plaintiffs were
concerned that the delay in construction could cause permanent damage to the Property because
the Property was unfinished and susceptible to water damage in the event of storms. Plaintiffs’
fears eventually came true as storms caused severe damage to the wood structure and plywood
floors, as well as mold growth on all floors, wall studs, and support wood members, necessitating
demolition.
¶ 26 In October 2015, plaintiffs hired another builder. In November 2015, plaintiffs refinanced
a more expensive loan with the Bank, costing them an additional $144,000, in order to completely
rebuild their home. Greenview and its owner filed for bankruptcy protection in 2016 and 2017,
respectively.
¶ 27 Meanwhile, plaintiffs’ expert, Robert Kirk, an architect, reviewed the Bank’s payouts for
the Project and he filed a report critical of the Bank’s process of inspecting Greenview’s work and
granting its first three draw requests. Kirk found that the Bank “carelessly provided appraisals
without proper investigation or required due diligence” and approved payment for construction
costs twice the amount of construction actually performed, including $35,000 for cabinets that
were not in place.
¶ 28 John Kastl attested in his affidavit:
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“Due to the Bank’s negligent misstatement to plaintiff’s agent Chicago Title,
plaintiffs improperly paid out money on construction loan draw requests of $123,664 and
$120,000 for work that was not actually performed, including cabinetry not installed and
purported payment for subcontractor bills that had not actually been paid. [Plaintiffs] had
acted in reliance on the truth of the reports by authorizing disbursement of their money to
Greenview by their agent Chicago Title in accordance with the Inspection Reports and
assertions of sufficient work in place for the draw amounts requested.
If the Bank had not negligently conducted the Property inspections but instead had
shown the accurate amount of construction completion at the Property, the construction
draws to Greenview for January and March 2015 would not have been allowed or would
at least have been greatly reduced. In addition, the negligent Property inspections allowed
Greenview to escape detection of its fraudulent diversion of construction funds into cash
for Greenview, resulting in inadequate construction to protect the Property from weather
and causing physical damage to the Property’s construction which did take place.”
¶ 29 In their amended complaint, plaintiffs pleaded that the Bank engaged in negligent
misrepresentation when its agent, 1st Executive, issued the two inspection reports in January and
March 2015 falsely stating, respectively, that Greenview had completed 29% and then 36% of the
construction. The Bank further engaged in negligent misrepresentation by issuing the Certificates
As To Completion certifying that Greenview had performed and completed all the work necessary
for payment of their draw requests.
¶ 30 In a separate count, plaintiffs pleaded a negligent misrepresentation claim directly against
1st Executive based on its issuing of the inspection reports.
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¶ 31 Plaintiffs also pleaded that the Bank violated the Consumer Fraud Act in pertinent part by
misrepresenting its willingness to refinance a new Greenview loan for plaintiffs, thereby inducing
them to delay hiring a different builder. The result of the delay is that the partially constructed
home on their Property suffered serious weather-related damage and had to be rebuilt with a more
expensive loan.
¶ 32 The circuit court granted 1st Executive’s motion to dismiss the negligent misrepresentation
count against it pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West
2018)) because the inspection reports clearly state that their purpose was only to provide the Bank
with information concerning Greenview’s completion of the construction. Thus, 1st Executive’s
duty was owed to the Bank and not to plaintiffs. The court further found that plaintiffs had failed
to plead their reliance on the inspection reports when agreeing to disburse funds to Greenview.
¶ 33 Plaintiffs subsequently attempted to replead their negligent misrepresentation count against
1st Executive in a proposed third amended complaint, for which they asked leave to file.
¶ 34 The circuit court denied plaintiffs’ motion to replead the negligent misrepresentation count
against 1st Executive, finding: “The current proposed amended complaint fails to correct the
failings of the previous complaint.”
¶ 35 Plaintiffs filed a motion to reconsider, which the circuit court denied. The court ordered
plaintiffs to refile the third amended complaint without the stricken count against 1st Executive.
¶ 36 Plaintiffs refiled the third amended complaint against the Bank 1, alleging that it engaged
in negligent misrepresentation when its agent, 1st Executive, issued the two inspection reports in
January and March 2015 falsely stating, respectively, that Greenview had completed 29% and then
1
Other defendants were dismissed and are not parties to this appeal.
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36% of the construction. The Bank further engaged in negligent misrepresentation by issuing the
Certificates As To Completion certifying that Greenview had completed all the work necessary
for payment of its draw requests.
¶ 37 Plaintiffs also pleaded that the Bank violated the Consumer Fraud Act by engaging “in a
fraudulent scheme known as the ‘bait-and-switch’, where a seller insincerely promotes an
attractively low-priced product which it does not actually intend to sell in order to place the victim
in a situation where they eventually buy a higher-priced more profitable product.” See Chandler
v. American General Finance, Inc., 329 Ill. App. 3d 729, 739-40 (2002). In this case, the bait was
the Bank’s promise that it would consider refinancing plaintiffs’ loan so as to allow them to
continue to use Greenview as their builder and finish the construction at the lowest possible price.
However, the Bank “was lying to [plaintiffs] and never even considered a refinancing loan with
Greenview, because the Bank knew Greenview had engaged in fraud and was a defunct entity (but
did not disclose any of this to [plaintiffs]).” The switch came after plaintiffs waited several months
for the Bank to agree to the refinance, during which time the unfinished Property was exposed to
rains causing mold and other damage necessitating a complete rebuild. “At that point, [plaintiffs]
had to refinance with the Bank a more expensive loan [with a different builder] with the additional
$144,000 to pay for a brand new structure, from which the Bank reaped additional profits.”
¶ 38 The Bank filed a motion for summary judgment on the negligent misrepresentation and
Consumer Fraud Act counts. As to the negligent misrepresentation count, the Bank argued that it
owed no duty to plaintiffs to supply inspection reports to Chicago Title and that neither plaintiffs
nor Chicago Title relied on the accuracy of the inspection reports prior to disbursing the monies to
Greenview. In support, the Bank cited the attached affidavit of Carlos Restrepo, a construction
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escrow administrator at Chicago Title, who attested that Chicago Title never received any
inspection reports in connection with plaintiff’s Project.
¶ 39 The Bank also argued that plaintiffs’ negligent misrepresentation claim is barred by the
economic loss doctrine stated in Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69(1982), and that the Consumer Fraud Act count fails because the Bank did not engage in a
fraudulent bait-and-switch.
¶ 40 The circuit court granted the Bank’s motion for summary judgment. Plaintiffs appeal.
¶ 41 First, we address the circuit court’s grant of summary judgment on plaintiffs’ negligent
misrepresentation claim against the Bank. Summary judgment is appropriate when the pleadings,
depositions, admissions and affidavits on file, viewed in the light most favorable to the nonmoving
party, reveal that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. Northbrook Bank & Trust Co. v. 2120 Division LLC, 2015
IL App (1st) 133426, ¶ 38. Review is de novo. Id.¶ 42 Our supreme court recognized the tort of negligent misrepresentation in Rozny v. Marnul,
43 Ill. 2d 54 (1969), approving of the reasoning found in the Restatement (Second) of Torts § 552.
Section 552 states:
“One who, in the course of his business, profession or employment, or in any other
transaction in which he has a pecuniary interest, supplies false information for the guidance
of others in their business transactions, is subject to liability for pecuniary loss caused to
them by their justifiable reliance upon the information, if he fails to exercise reasonable
care or competence in obtaining or communicating the information.” Restatement (Second)
of Torts § 552(1) (1977).
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¶ 43 To state a claim for negligent misrepresentation, plaintiff must allege: (1) defendant’s false
statement of material fact; (2) defendant’s carelessness or negligence in ascertaining the truth of
the statement; (3) defendant’s intention to induce plaintiff to act; (4) action by plaintiff in reliance
on the truth of the statement; (5) damage to plaintiff resulting from such reliance; and (6) a duty
on defendant to communicate accurate information. First Midwest Bank, N.A. v. Stewart Title
Guaranty Co., 218 Ill. 2d 326, 334-35 (2006).
¶ 44 In the instant case, plaintiffs’ negligent misrepresentation claim relates to the allegedly
false information supplied by: (1) the inspection reports regarding the amount of construction
completed by Greenview; and (2) the “Certificates As To Completion” stating that the Bank
certified that all work for which Greenview requested payment had been satisfactorily completed.
The Bank argues that it owed no duty to plaintiffs in the preparation of either the inspection reports
or the Certificates As To Completion because: (1) the disbursement agreement stated that it was
plaintiffs’ obligation—not the Bank’s—to provide Chicago Title with an inspection report; (2) the
escrow agreement specifically stated that inspections are conducted “for the direct benefit of the
lender only”; (3) Chris Tessmann, the Bank’s residential loan servicing technician, attested that
the inspection reports it orders (and upon which it relied when sending the Certificates As To
Completion) are for the Bank’s own internal review and not intended to be reviewed or relied on
by the Bank’s customers or the escrowee; and (4) Curt Kolell, the Bank’s chief appraisal officer,
attested that the Bank’s internal review of appraisals is done solely for assisting it in making
lending and credit decisions and is not done for the guidance of the Bank’s customers. Further, the
Bank contends it owed no duty to plaintiffs to inspect the Property because the mortgage provides
that it is plaintiffs’ duty to “maintain the Property in order to prevent the Property from
deteriorating or decreasing in value due to its condition.”
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¶ 45 Duhl v. Nash Realty, Inc., 102 Ill. App. 3d 483, is informative on the Bank’s duty here. In
Duhl, Michael and Judith Duhl (plaintiffs) brought a negligent misrepresentation claim against a
real estate agent who allegedly misrepresented the value of plaintiffs’ home for purposes of a sale.
Id. at 485-87. The issue on appeal was whether the real estate agency owed plaintiffs a duty in the
absence of a brokerage agreement between the parties. Id. at 493. The appellate court held:
“[I]t is elementary tort law that when one undertakes to perform a task, one assumes
the duty to use proper care in the performance of the task. (Citation.) Here, accepting the
allegations of the complaint, the defendants undertook to evaluate the plaintiffs’ property
and to advise them as to what price it could be sold for and how quickly. Not only did the
defendants undertake the task, but they repeatedly represented their expertise in the field
and their ability to make valuations and representations which could be relied upon. Having
undertaken this, defendants had a duty to plaintiffs not to act negligently in rendering this
service.” Id.¶ 46 In the present case, Rashila attested in her uncontradicted affidavit that Bank employee Ed
Currie informed her that whenever Greenview made a draw request, the Bank would undertake the
duty of ordering an inspector to evaluate whether all the necessary work had been completed to
justify the draw and that no draws would be approved without such a Bank inspection. As in Duhl,
the Bank’s decision to perform the inspection of plaintiffs’ property imposed the duty on it not to
act negligently in rendering this service.
¶ 47 The Bank argues, though, that plaintiffs seek only economic damages and that under
Moorman’s economic loss doctrine, the supreme court has held:
“Where, as here, purely economic damages are sought, this court has imposed a
duty on a party to avoid negligently conveying false information only if the party is in the
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business of supplying information for the guidance of others in their business transactions.”
First Midwest Bank, N.A. v. Stewart Title Guaranty Co., 218 Ill. 2d 326, 335 (2006) (citing
Brogan v. Mitchell International, Inc., 181 Ill. 2d 178, 183-84 (1998) and Moorman, 91
Ill. 2d at 89).
¶ 48 The Bank contends that it was not in the business of supplying inspections or Certificates
As To Completion for the benefit or guidance of its customers, as required to establish a duty under
Moorman’s economic loss doctrine. To determine whether a party is in the business of supplying
information for the purposes of imposing a duty under Moorman, the precise facts of the specific
case must be analyzed. Tolan & Son, Inc. v. KLLM Architects, Inc., 308 Ill. App. 3d 18, 26 (1999).
¶ 49 When the negligent misrepresentation is contained within information that is incidental or
ancillary to a tangible product, such as an architect’s drawings for a building, the accuracy of such
information can be memorialized in contract terms and defendant is not deemed to be in the
business of providing information and is not liable for the tort of negligent misrepresentation. First
Midwest Bank, N.A., 218 Ill. 2d at 339-40; Fox Associates, Inc. v. Robert Half International, 334
Ill. App. 3d at 95. If the information is an end to itself, central to the business transaction, and is
not otherwise incorporated into a tangible object, such as a legal brief prepared by an attorney or
a financial statement prepared by an accountant, then defendant is deemed to be in the business of
providing information and is liable for any negligent misrepresentation contained in the
information provided. See Fireman’s Fund Insurance Co. v. SEC Donohue, Inc., 176 Ill. 2d 160,
168-69 (1997); Tolan & Son, 308 Ill. App. 3d at 29.
¶ 50 In the instant case, the Bank argues that it is not subject to the tort of negligent
misrepresentation under Moorman because the inspection reports and Certificates As To
Completion were ancillary to and incorporated in a tangible product: the construction loan and
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mortgage and note. See Jones v. Countrywide Home Loans, Inc., 2010 WL 551418, * 5 (holding
that plaintiff’s negligent misrepresentation claim failed because the mortgage loan was a tangible
product and the information provided at closing was ancillary thereto). However, unlike Jones, the
inspection reports and Certificates As To Completion were issued more than a year after the
closing on the loan and were addressed only to Greenview’s draw requests. The value of the
services provided in the inspection reports and certificates lied in their analysis and conclusions as
to whether Greenview’s construction on the Project justified its draw requests; in other words, the
end product was the information and analysis provided and not any tangible documents or other
objects into which the information was incorporated. The allegedly false information contained in
the inspection reports and certificates regarding the amount of construction completed by
Greenview was central to the business transaction at issue, specifically, to the approval of
Greenview’s draws and the disbursal of funds from plaintiffs’ construction loan. As such, the Bank
is deemed under Moorman to be in the business of providing the information contained in those
inspection reports and certificates and had the duty to avoid negligently conveying false
information.
¶ 51 The Bank argues that Northern Trust Co. v. VIII South Michigan Associates, 276 Ill. App.
3d 355 (1995) compels a different result. In Northern Trust Co., certain guarantors formed an
Illinois limited partnership, VIII South Michigan Associates (VIII South) to acquire an office
building in Chicago. Id. at 358. VIII South applied to the Northern Trust Company (Northern) for
a short-term acquisition loan of $7.05 million. Id. In connection with the application, VIII South
advised Northern that over half the tenants of the building were not paying rent or were paying
below market rate and therefore the building likely would be operating with a minimal net
operating income and negative cash flow in the early years. Id. Although it classified the loan as
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troubled, Northern agreed to loan VIII South $7.05 million for one year with an option to renew
for a second year. Id. at 359. Northern subsequently extended the term of the loan and increased
the amount of the loan by several million dollars. Id.¶ 52 Northern later brought suit against VIII South and the guarantors to foreclose. Id. at 362.
The trial court entered judgment in favor of Northern. Id.¶ 53 On appeal, the guarantors argued that Northern engaged in fraud by breaching its obligation
to inform them that it had classified their loan as troubled. Id. at 364. The appellate court disagreed,
noting that the guarantors admitted they knew that VIII South would have a negative cash flow
during the term of the loan and that the amount of the loan exceeded the value of the building, yet
they still agreed to enter into the loan agreements and guaranty. Id. Northern “cannot be liable for
failing to disclose to the Guarantors information of which they should have been and indeed were
aware.” Id.¶ 54 The appellate court further held:
“a financial institution, acting within its conventional role as a lender of money, owes no
duty of care to the borrower when preparing an appraisal of the borrower’s collateral. ***
[T]he public policy is that if financial institutions are to remain solvent, they must not be
required to insure the success of every investment. To impose upon the lender a duty of
care in preparing an appraisal done solely for the lender’s benefit would drastically alter
the risk undertaken by the lender.” Id. at 365.
¶ 55 The Bank argues that the rationale of Northern Trust should apply with “equal force” here
because “[c]onstruction lending would be impracticable and the threat of financial ruin substantial
if a lender was required to ensure the success of every construction project it financed.” We find
Northern Trust to be inapposite, as the instant case does not involve the Bank’s initial appraisal of
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plaintiffs’ collateral for purposes of deciding whether to issue a loan, nor does it involve the Bank’s
failure to disclose information to plaintiffs of which they already were aware. Rather, this case
involves a construction loan and escrow agreement requiring inspections of the subject Property
to ensure that construction was proceeding at a pace justifying Greenview’s draw requests. The
Bank allegedly promised plaintiffs that it would provide the necessary inspections such that no
draw would be approved absent a finding that the necessary construction work had been
completed. It is sound public policy to require the Bank to perform the inspections with reasonable
care to avoid negligently conveying false information regarding whether the completed
construction work justified the amount of the draw requested. Such a requirement does not force
the Bank to ensure the success of the construction project, only that it act reasonably when
inspecting the Property in connection with granting/denying the builder’s draw requests.
¶ 56 Next, the Bank argues that plaintiffs cannot establish their actual reliance on the
truth/accuracy of the inspection reports and Certificates As To Completion because Rashila
admitted in her deposition that at closing, she never had any conversations with any Bank
employee that would cause her to rely on the Bank to accurately inspect the Property prior to
disbursement of funds to Greenview. Further, Rashila and John admitted in their respective
depositions that they did not receive the inspection reports prior to their approval of disbursement
of funds to Greenview, and Carlos Restrepo similarly admitted in his affidavit that Chicago Title
also did not receive the inspection reports prior to disbursal. However, in her affidavit, Rashila
attested that in October 2013, prior to the closing, she had a conversation with Bank employee Ed
Currie in which he promised her that the Bank would perform the requisite inspections and she
stated:
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“Because none of the Kastl family had experience with construction or inspecting
home construction, we entrusted the Bank to conduct the inspections as the Bank demanded
with its home building and appraisal business experience.”
¶ 57 Rashila testified consistently in her deposition that “the part that [she] felt comfortable was
that there’s no way the Bank would approve the draw if the inspection wasn’t up to their standards
and that the work was being done as—as expected.”
¶ 58 John similarly attested in his affidavit:
“Because none of the Kastl family had experience with construction or inspecting
home construction, we entrusted the Bank to conduct the inspections as the Bank demanded
for draw disbursements on its home construction loan with us, and relied on its home
building and appraisal business experience. *** In reliance on the Bank’s assurance that
Project inspection reports showing adequate completion of the Project would be completed
by the Bank before any draws on our loan with the Bank were paid out, we agreed to and
did pay the Bank $900 at closing to perform the Property inspections prior to disbursement
of construction draws.”
¶ 59 John further attested that in reliance on the Bank’s Certificates As To Completion,
plaintiffs approved Greenview’s second and third draws.
¶ 60 Rashila’s and John’s depositions and affidavits are sufficient to raise a question of material
fact regarding whether Currie promised that the Bank would perform all necessary inspections
before approving disbursal of funds to Greenview, and whether in accordance with those promises,
plaintiffs relied on the accuracy of the Bank’s inspections and Certificates As To Completion.
¶ 61 The Bank argues that plaintiffs’ reliance on the accuracy of the inspection
reports/Certificates As To Completion was unjustified because Rashila lived near the Project,
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drove by it twice daily, and saw that the subcontractors had stopped performing work. However,
Rashila testified that she drove by the Property and saw that the subcontractors had stopped
performing work in late March, early April 2015, which was after the inspection
reports/Certificates As To Completion for the second and third draws had been submitted and the
funds disbursed. Rashila did not testify to having any knowledge of the subcontractors’ work
stoppage prior to the submission of the inspection reports/Certificates As To Completion. Rashila’s
testimony at least raises a question of material fact regarding whether plaintiffs’ reliance on the
inspection reports and certificates was reasonable.
¶ 62 The Bank next argues that plaintiff’s expert, Kirk, failed to show that the Bank acted
negligently in the inspection process for the second and third draws, as his report addressed only
the fourth draw, which is not at issue here. To the contrary, Kirk’s report addressed the first three
draw requests through March 2015 and found the Bank’s inspection process faulty, as it approved
thousands of dollars in payments for certain construction that had never been performed. Kirk
stated that as of January 25, 2016, Greenview had completed only 27% of the total construction,
which was less than the amounts indicated in the inspection reports and certified by the Bank as
having been completed in connection with the second and third draws. Kirk’s report was sufficient
to at least raise a question of material fact regarding whether the Bank’s inspection and certification
process was negligent with respect to the second and third draws.
¶ 63 The Bank also argues that plaintiffs failed to show that the inspection reports/Certificates
As To Completion were intended to induce them to agree to the disbursement of funds to
Greenview. We disagree. Rashila’s and John’s affidavits and deposition testimony indicate they
agreed to the disbursement of funds to Greenview based on Currie’s promises that the inspection
reports/Certificates As To Completion would ensure that sufficient construction had been
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completed justifying the draws. Rashila’s and John’s affidavits and deposition testimony at least
raise a genuine issue of material fact regarding whether the Bank (through Currie) intended for the
inspection reports and Certificates As To Completion to induce plaintiffs to agree to the
disbursement of funds to Greenview.
¶ 64 The Bank also argues that any false statement of material fact was made by 1st Executive
in its inspection reports, and that the Bank did not direct or advise 1st Executive how to conduct
the inspections, “which is to say, [1st Executive] was not the Bank’s agent” and therefore the Bank
should not be held liable therefor. The Bank’s argument fails, as its liability for negligent
misrepresentation is premised on the allegedly false statements that the Bank itself made in the
Certificates As To Completion, wherein it certified that all work for which payment was requested
by Greenview had been “satisfactorily completed.” The Bank may be held liable for any negligent
misrepresentations contained in those certificates.
¶ 65 Next, the Bank argues that plaintiffs failed to establish that their damages were proximately
caused by the Bank. John attested to the damages proximately caused by plaintiffs’ reliance on the
Bank’s negligent misrepresentations contained in the Certificates As To Completion, specifically,
plaintiffs made payments totaling over $243,000 to Greenview for work that was not actually
performed. John further attested that the Bank’s negligence allowed Greenview to escape detection
of its shoddy construction work on their Property, which damaged plaintiffs when Greenview’s
poor workmanship failed to protect the Property from rains and storms, necessitating its demolition
and requiring that it be rebuilt. John’s affidavit was sufficient to at least raise a genuine issue of
material fact regarding whether the Bank’s negligent misrepresentations proximately caused
plaintiffs’ damages.
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¶ 66 For all the foregoing reasons, we reverse the grant of summary judgment in favor of the
Bank on plaintiffs’ negligent misrepresentation claim and remand for further proceedings thereon.
¶ 67 Next, we address plaintiffs’ appeal from the order granting summary judgment for the Bank
on their Consumer Fraud Act claim. To prevail on a consumer fraud claim, plaintiffs must show
that the Bank engaged in a deceptive act or practice in the course of conduct involving trade or
commerce, intending that plaintiffs rely on the deception. Plaintiffs also must show actual damage
proximately caused by the deception. Avery v. State Farm Mutual Automobile Insurance Co., 216
Ill. 2d 100, 180 (2005).
¶ 68 Plaintiffs alleged that the Bank violated the Consumer Fraud Act by engaging in a
fraudulent “bait-and-switch” scheme whereby the Bank baited plaintiffs by falsely promising them
throughout June and July 2015 that it would consider refinancing their loan so as to allow them to
continue using Greenview as their builder. According to plaintiffs, the Bank never actually
intended to allow such a refinancing utilizing Greenview as the builder. The switch to a more
expensive loan utilizing a different builder came after the Bank’s delay in refinancing caused the
unfinished Property to be exposed to the elements, necessitating a complete rebuild.
¶ 69 Plaintiffs’ bait-and-switch claim fails because there was no fraudulent or deceptive bait.
Anita Fehler, the Bank’s residential underwriting manager, attested in her affidavit that the Bank
never adopted a policy prohibiting its customers from using Greenview as their builder or refusing
to consider a loan or refinance application if the builder chosen by the customer was Greenview.
Therefore, the Bank’s promises to plaintiff that it would consider such a refinancing with
Greenview as the builder were not deceptive. Fehler’s affidavit was uncontradicted by any other
affidavit and thus must be taken as true for purposes of the Bank’s summary judgment motion.
FirstMerit Bank, N.A. v. McEnery, 2022 IL App (3d) 210306, ¶ 24.
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¶ 70 There also was no fraudulent or deceptive switch into a more expensive loan with a
different builder. Rashila herself admitted in her deposition that by late June 2015, Alan Langsam,
Greenview’s CFO, informed her that the cost of finishing the construction project had increased
by about $300,000, necessitating a new loan in a higher amount to cover the increased construction
costs. Rashila further testified that by late July 2015, she had sought bids from other construction
companies and concluded that the costs of the rebuild would be the same (an additional $300,000)
regardless of whether plaintiffs stayed with Greenview or hired a different company. Thus, the
increased loan amount was necessary regardless of which company ended up finishing the
construction project and the loan amount would not have differed even if the Bank had allowed
plaintiffs to refinance while continuing to use Greenview. On these facts, plaintiffs have shown no
fraudulent bait-and-switch that ended up damaging plaintiffs by costing them more money.
Therefore, we affirm the grant of summary judgment in favor of the Bank on plaintiffs’ Consumer
Fraud Act count.
¶ 71 Next, we address plaintiffs’ appeal from the denial of their motion to reconsider the denial
of leave to file a third amended complaint alleging negligent misrepresentation against 1st
Executive. Plaintiffs contend that the denial of their reconsideration motion was premised on the
court’s finding that their negligent misrepresentation count failed to state a cause of action under
section 2-615. Plaintiffs argue that the court erred in so finding and they ask us to “reverse the
dismissal.”
¶ 72 A section 2-615 motion challenges the legal sufficiency of the complaint based on defects
apparent on its face. Marshall v. Burger King Corp., 222 Ill. 2d 422, 429 (2006). When reviewing
the complaint, we accept as true all well pleaded facts and all reasonable inferences that may be
drawn from those facts, and consider the allegations in the light most favorable to plaintiffs. Id.-24-
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We also can consider exhibits attached to the complaint. Wells v. State Farm Fire and Casualty
Co., 2020 IL App (1st) 190631, ¶ 29. A section 2-615 dismissal should be granted only where it is
clearly apparent that no set of facts can be proved that would entitle plaintiffs to recover. Marshall,
222 Ill. 2d at 429. Our review is de novo. Id.¶ 73 1st Executive argues that plaintiffs’ arguments for reversal of the court’s section 2-615
dismissal of the third amended complaint are misplaced because the only dismissal order entered
in this case was the one entered on the amended complaint. No dismissal order was entered on the
proposed third amended complaint because the court never permitted plaintiffs to file the third
amended complaint against 1st Executive. Thus, 1st Executive argues that plaintiffs have mis-
framed the issue on this appeal by arguing for reversal of a dismissal order that was never entered,
instead of arguing for reversal of the order actually entered here, specifically, the order denying
plaintiffs’ motion to reconsider the denial of their motion for leave to file the third amended
complaint. 1st Executive asks us to dismiss plaintiffs’ appeal as to it based on their failure to clearly
define the issues presented. See Williamson v. Opsahl, 92 Ill. App. 3d 1087, 1089 (1981) (“a
reviewing court is entitled to have the issues clearly defined with pertinent authority cited and is
not simply a depository in which the appealing party may dump the burden of argument and
research”).
¶ 74 We are able to glean from plaintiffs’ briefs that they are arguing that the court’s order
denying the motion to reconsider was premised on its conclusion that the third amended complaint
failed to cure the deficiencies of the amended complaint and did not state a cause of action under
section 2-615. As such, plaintiffs have focused their argument on whether the proposed third
amended complaint states a cause of action for negligent misrepresentation against 1st Executive
and have cited pertinent cases in support thereof. Given that we understand the issue presented,
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which is supported with pertinent authority, we deny 1st Executive’s motion to dismiss and will
address the issue on the merits.
¶ 75 Plaintiffs’ proposed third amended complaint alleged that 1st Executive committed
negligent misrepresentation by issuing inspection reports falsely showing that in January and
March 2015, Greenview had respectively completed 29% and 36% of the construction of the
Project. Plaintiffs alleged that 1st Executive owed them a duty when preparing the inspection
reports because it was aware that the reports would be relied on by plaintiffs and their agent,
Chicago Title, when deciding whether to pay Greenview’s draw requests. In support, plaintiffs
attached documents received by 1st Executive in connection with each draw request, including: an
email from Bank agent Lynn Zaehler to Paul Szwed of 1st Executive; a letter from Greenview to
Zaehler and Chicago Title; a sworn statement from Greenview’s owner; and the Bank’s inspection
report request to 1st Executive. These documents identified plaintiffs as the owners of the Property
upon which Greenview was working and for which an inspection was needed to determine whether
Greenview had completed the necessary construction justifying the payment of its draw.
¶ 76 Plaintiffs pleaded that these accumulated documents effectively put 1st Executive on notice
that plaintiffs and/or their agent Chicago Title would rely on the inspection report when deciding
whether to pay the draw request.
¶ 77 In their memorandum in support of the motion for leave to file the proposed third amended
complaint (memorandum), plaintiffs argued that they had stated a cause of action for negligent
misrepresentation in accordance with Kelley v. Carbone, 361 Ill. App. 3d 477 (2005). The
defendants in Kelley were appraisers of property that plaintiffs leased and intended to purchase
from the lessor. Id. at 479. The purchase price was based on an appraisal performed by defendants.
Id. Plaintiffs purchased the property and later sued defendants for negligent misrepresentation,
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alleging that the appraisal contained numerous errors, resulting in plaintiffs paying too high a price
for the property. Id. The trial court dismissed the complaint with prejudice. Id.¶ 78 On plaintiffs’ appeal, defendants argued they owed no duty to plaintiffs because the
appraisal specifically stated that it was prepared exclusively for the use of the lessor. Id. at 481.
The appellate court held that plaintiffs had sufficiently pleaded that defendants owed them a duty:
“The appraisal itself stated that it was to ‘be used by the client to support possible
future purchase agreements between the client and the current lessee of the subject
property.’ Plaintiffs also allege that defendants were provided with copies of the leases,
which detailed plaintiffs’ options to purchase the properties. Defendants knew that
plaintiffs’ decisions to purchase the properties would be influenced by their appraisal of
the properties. Thus, plaintiffs have established that they were part of the limited class for
whose guidance the appraisal was intended.” Id.¶ 79 In their memorandum, plaintiffs argued that Kelley compelled a finding that 1st Executive
owed them a duty when preparing the inspection reports as 1st Executive was aware that plaintiffs
were part of the limited class for whose guidance the inspection reports were intended. The circuit
court disagreed, finding that plaintiffs failed to adequately allege that 1st Executive owed them a
duty when preparing the inspection reports or that plaintiffs actually relied on those reports prior
to agreeing to disburse funds to Greenview.
¶ 80 Plaintiffs subsequently filed their motion to reconsider and cited 21 Kristin Condominium
Association, by its Board of Managers v. Pioneer Engineering & Environmental Services, LLC,
2020 IL App (1st) 191868. In 21 Kristin, the appellate court cited Kelley with approval in holding
that the defendant engineer who had prepared a property condition assessment (PCA) for a
condominium building owed a duty toward purchasers of the condominium units because
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defendant knew the purchasers would consider the report when making the purchase decision. Id.
¶¶ 10-14. Defendant owed the purchasers a duty even though the PCA expressly stated that it had
been prepared for the “sole use” of the condominium developer. Id. ¶ 14.
¶ 81 Plaintiffs here argued in their motion to reconsider that, as in 21 Kristin, their proposed
third amended complaint adequately pleaded that 1st Executive owed them a duty of care when
preparing the inspection reports because it was aware that plaintiffs would rely on the inspection
reports when deciding whether to pay Greenview’s draws. The circuit court found no cause to
reconsider its finding that plaintiffs failed to adequately plead the duty and reliance elements of a
negligent misrepresentation cause of action and denied plaintiffs’ motion for reconsideration. Our
review is de novo. See Liceaga v. Baez, 2019 IL App (1st) 181170, ¶ 26 (where, as here, the motion
to reconsider was based on the trial court’s alleged misapplication of existing law, review is de
novo).
¶ 82 Plaintiffs’ proposed third amended complaint adequately alleged that 1st Executive owed
a duty toward plaintiffs when preparing the inspection reports. According to the proposed third
amended complaint and the attached documents received by 1st Executive in connection with the
draw request, 1st Executive was aware that plaintiffs were relying on the accuracy of the inspection
reports in connection with the draw process. These allegations and supporting documentation were
sufficient under Kelley and 21 Kristin to show that plaintiffs were part of the class for whose
guidance the inspection reports were prepared.
¶ 83 1st Executive argues that plaintiffs’ allegations regarding its duty toward them are
contradicted by other exhibits attached to the complaint, specifically, the Construction Draws
Procedures and Policies, the escrow agreement, and the inspection reports themselves. All of those
exhibits indicated that the inspection reports were being done solely for the Bank’s benefit and
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that plaintiffs had the duty to independently assess (apart from the inspection reports) whether
there was sufficient construction justifying the draw; accordingly, 1st Executive contends that the
exhibits show that it owed plaintiffs no duty when preparing the inspection reports. 1st Executive
cites well-established law that where there is a discrepancy or contradiction between allegations
in a complaint and facts shown in an exhibit that were attached to the complaint, the exhibit will
control. Outboard Marine Corp. v. James Chisholm & Sons, Inc., 133 Ill. App. 3d 238, 245 (1985).
¶ 84 We find no discrepancy here as plaintiffs’ allegations are that notwithstanding the
Construction Draws Procedures and Policies, escrow agreement, and inspection reports, the other
documents received by 1st Executive in connection with the draw requests were sufficient to put
it on notice that plaintiffs would in fact be relying on the inspection reports during the draw
process. Plaintiffs’ allegations are sufficient under Kelley and 21 Kristin to plead that 1st Executive
owed them a duty of care when preparing the inspection reports.
¶ 85 1st Executive next argues that plaintiffs failed to adequately plead that they relied on the
inspection reports, as plaintiffs admittedly approved the draw requests prior to ever receiving the
inspection reports. Careful review of plaintiffs’ proposed third amended complaint shows that they
approved the draw requests only on the condition that 1st Executive would conduct an inspection
of the Property and prepare an inspection report justifying the Bank in certifying that sufficient
construction had been completed to support the payment of the draw. In other words, plaintiffs’
approval of the draw requests relied on the safeguard that if the inspection reports revealed
insufficient construction, the Bank would not certify approval and the funds would not be
disbursed.
¶ 86 Plaintiffs adequately alleged the duty and reliance elements of a negligent
misrepresentation cause of action against 1st Executive. Accordingly, we reverse the order denying
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plaintiffs’ motion to reconsider the order denying them leave to file its proposed third amended
complaint alleging negligent misrepresentation against 1st Executive and remand for further
proceedings.
¶ 87 For all the foregoing reasons, we affirm the grant of summary judgment in favor of the
Bank on plaintiffs’ Consumer Fraud Act claim; reverse the grant of summary judgment for the
Bank on plaintiffs’ negligent misrepresentation claim; reverse the denial of plaintiffs’ motion to
reconsider the denial of leave to file a third amended complaint alleging negligent
misrepresentation against 1st Executive; and remand for further proceedings.
¶ 88 Affirmed in part, reversed in part, and remanded.
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