Kim v. Song
2016 IL App (1st) 150614-B
| Ill. App. Ct. | 2016Background
- Six Korean‑community investors (plaintiffs) purchased shares in American Metro Bancorp (AMB) after oral solicitations by Song and Lee promising they would acquire control of AMB and open a Korean bank; plaintiffs also paid separate attorney‑fee payments.
- Plaintiffs later alleged oral misrepresentations and nondisclosures, brought common‑law fraud (Count I), Illinois Securities Law violations (Count III), and Regulation D violations (Count IV).
- Subscription materials (including a subscription agreement with a nonreliance clause) were attached to the complaint; plaintiffs acknowledged the agreement stated the shares were offered relying on Rule 506 of Regulation D.
- Defendants moved to dismiss under Ill. Code Civ. Proc. §2‑615, arguing plaintiffs’ claims are barred by the agreement’s nonreliance clause and/or inadequately pleaded.
- The trial court dismissed the amended complaint; on appeal the court considered whether the nonreliance clause bars plaintiffs’ fraud and securities claims and whether Regulation D supports an independent cause of action.
- The appellate court affirmed dismissal of Counts I, III, and IV: nonreliance clauses precluded reliance‑based claims and Regulation D is not a standalone basis for suit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs may maintain common‑law fraud claims based on oral statements when they signed a subscription agreement containing a nonreliance clause | Oral misrepresentations induced purchases; nonreliance clause is inapplicable because subscribers didn’t receive/signed agreement pre‑purchase or AMB never accepted | Nonreliance clause in subscription agreement bars justifiable reliance as a matter of law (Greer/Tirapelli line) | Dismissed: nonreliance clause precludes justifiable reliance, so fraud claim fails |
| Whether plaintiffs’ Illinois Securities Law claims (sections invoking reliance) survive the nonreliance clause | Greer is limited to common‑law fraud and does not bar statutory securities claims; agreement was with AMB, not defendants | Nonreliance clause bars reliance‑based securities claims (Tirapelli); plaintiffs failed to plead required reasonable reliance | Dismissed: claims under sections requiring reliance (12[F], 12[G], 12[I], etc.) fail for lack of reasonable reliance |
| Whether Count IV (Regulation D) states an independent cause of action | Regulation D violations were pled (failure to provide disclosure, sale to non‑accredited investors, general solicitation) | Regulation D provides exemptions and is an issuer‑side mechanism/defense, not an independent private cause of action | Dismissed: Regulation D is not a standalone basis for suit; plaintiffs did not plead a proper §5 claim and failed to argue Regulation D claim on appeal |
Key Cases Cited
- Adler v. William Blair & Co., 271 Ill. App. 3d 117 (explains nonreliance clause makes reliance unreasonable as a matter of law)
- Tirapelli v. Advanced Equities, Inc., 351 Ill. App. 3d 450 (applies nonreliance‑clause rule to bar reliance‑based Illinois Securities Law claims)
- Benson v. Stafford, 407 Ill. App. 3d 902 (discusses the automatic preclusion of fraud damages when a nonreliance clause exists)
- Connick v. Suzuki Motor Co., 174 Ill. 2d 482 (states elements and pleading particularity required for common‑law fraud)