*1 SYSTEMS, INC., Plaintiff-Appellant, v. JULES COMPETITIVE FOOD al., Laser, Schostok, Frank, et and as partners LASER Indiv. Kolman & al., (Silvertrust, Third-Party Defendants and Plaintiffs-Appellees et Chulock Stewart, al., Defendants). Third-Party

& et

Second District No. 2 — 87—0203 Opinion April 21, Supplemental opinion filed on denial 30, 1988. rehearing June *2 (Michael Associates, Chicago Panter Michael R. Panter & R. Hirsh, counsel), appellant. Richard L. *3 Dowd, Monahan, McGarry, P.

Lynn D. Peter A. and Thomas all Hin- Fuller, Culbertson, Moelmann, (George shaw, Chicago Hoban & W. Jr., counsel), Spellmire, appellees. for delivered the of the opinion

PRESIDING JUSTICE LINDBERG court:

Plaintiff, Inc. has (Competitive), Food Competitive Systems, ap- Lake defend- County granting an order of the circuit court of pealed for judgment plaintiff’s complaint alleging ants’ motion on summary The only of contract. issue raised on legal ap- and breach malpractice defendants’ motion for properly granted is whether the trial court peal the record consists of thousand judgment. Although several understanding background factual will suffice an pages, brief appeal. the issue on running a chain of small stores in is in the business of

Competitive nuts, Com- and other confectionaries. malls which sell fruits shopping and John Defend- managed by Lofquist. Barbara is owned and petitive for over had been counsel to general ants are and attorneys an with Rod- helped negotiate agreement when one defendants year $1,500,000 of a underwriting for the (underwriters) man and Renshaw guaranteed to all offering purchase which the underwriters private underwriting agreement required units the The offering. unsold circular offering to furnish certain data and to Competitive produce used by offering 1981. This circular was to be September by underwriting agree- in their solicitation of investors. The underwriters offering applicable ment also to with all comply circular required laws of the and Commission. Defendants Exchange agreed Securities to offering do the required produce specified work circular in plaintiff’s with the were to re- agreement underwriters. Defendants $25,000 ceive a flat to be out of the the under- paid proceeds fee An circular as writing. offering agree- underwriter’s required by ment produced September 15, was not 1981. Sometime between 14, 1981, September 15 November the underwriters withdrew All guarantee unsold shares. continued to purchase parties work An offering. offering produced circular on November 14,1981, and was used solicit investors. offering failed and transactions suit terminated. Plaintiffs filed

against legal malpractice defendants for and for breach of contract due to defendants’ to produce failure circular offering by September 1981. Several years discovery, took depositions pleadings place until defendants filed the motion which is the subject of appeal. this Défendants’ motion for summary filed 10 trial days before and ruled upon by morning trial court of trial. an,

Defendants’ motion for summary judgment yet, consisted of unraised affirmative defense mal plaintiff’s complaint alleging legal practice and breach of contract. Defendants’ affirmative defense al leged that the financial would be to be part the offering circular were “materially “unreasonable” false.” argued these were John Lof prepared quist, Competitive’s owner. The material projections would be misstate and, therefore, and misleading a violation of Rule 10b—5' of the ments Securities and Exchange (SEC) (17 Commission C.F.R. §240.10b —5 Therefore, (1979)). any produced by circular on or before September 1981, containing plaintiff’s projections would contend, have been as a matter of illegal law. Defendants are they liable, law, as a matter commit an failing help plaintiff *4 illegal argued act. Defendants also in their motion for summary judg plaintiffs ment: not the of (1) that could establish “but for” element proximate cause for the mal required liability theory under of practice; and the of (2) that unresolved status a trademark and disputed prevented per clause from noncompetition defendants and, law, therefore, a matter of forming defend- obligations, genuine The trial court plaintiff. found issues ants could be liable at issue on this arguments, they of fact as to these and are not material of addressed to these issues on argument ap- extensive appeal, spite peal parties. the fact as genuine trial no issue of material to the court found motion granted summary defendants’ a matter law that defendants could not be concluding as

judgment, the circular failing produce by September held liable n part: relevant 1981!The trial court’s order stated in that an liberal inter- “Though possibility extremely there is that may genu- of the could show there be pretation pleadings for’ to: the ‘but test respect ine issue material with P] with respect legal malpractice (supra) ^[2] the status the clause; have firmly trademark and the non-compete issue material fact with genuine established that there no The Court is of the (supra). to the respect cases, the and other viewing Midwest Bank status opinion, part on the any liability of the financial projections precludes the Defendants.” note that the affirmative defense raised

Initially, we which the court rule subject trial could proper An defense judgment. may a motion for affirmative be motion even not raised in the summary judgment though raised in a (Midwest Village v. Lakewood pleadings. Bank & Trust Co. Although 1358.) may 113 Ill. 3d 447 N.E.2d there exist App. court, the fact, viewing light when issue of trial evidence nonmoving may grant summary party, most favorable law, no that, (113 it as a matter of exists. Ill. liability where concludes 962,. 1358.) On of the trial court’s granting 3d review App. trial (1) must whether court summary judgment, we determine existed finding (2) was correct issue material fact correct as a matter of law. entry 3d (Bauer City Chicago (1985), App. 422.) v. 137 Ill. measure, to granted only is a drastic be where the Summary judgment evidence, against moving party, most estab strongly construed clearly lishes doubt thereto. Becovic Harris right without 469 N.E.2d 1379. Savings Trust & Bank First, concerning defendants’ we address law affirmative rule the court will not It is defense. based on well-established profit from fraud-feasor, jurisdiction, invokes the court’s aid a who This on the rule is based ration by recovering damages. his own fraud his refuse to who seeks to base cause anyone ale that the courts will aid

611 of upon illegal (Mettes action or immoral act or transaction. Quinn Mettes, 89 (1980), Ill. 3d 411 In App. 549.) appel late court affirmed dismissal plaintiff’s complaint where of plaintiff to sought damages recover for the allegedly faulty advice given her attorney be uncov plaintiff’s which allowed fraud to and, thus, ered. This rule defendants’ affirmative defense is applicable I count II alleging legal malpractice and count breach of alleging (Tovar contract. v. Paxton 29 Community Hospital Memorial Ill. 3d App. will (the plaintiff 247 rule that not be permitted to his own profit by wrong by recovering damages applies a complaint alleging the same acts amounted to of contract and breach tort).) It is clear that in order for defendants’ affirmative defense to succeed, plaintiff must commit sought have a fraud or illegal other act. An or illegal fraudulent act part on the is essential to defendants’ and, affirmative therefore, defense is a material issue. Guyton v. Roundy (1985), 3d 477 App. N.E.2d 1266 (to defeat summary judgment, a disputed issue must be material to the essential elements either the cáuse of or action defenses to the cause of action).

Since the essential element of an illegal fraudulent act plaintiff is based on alleged illegality the financial projections, the illegality of the financial is projections a material issue defendants’ motion for is dependent. purpose judgment is to render questions law after first determining genuine that no issue of material fact exists between the parties. (Deltak, Inc. v. Schwartz 119 Ill.

N.E.2d 187.)Therefore, we must address the second and third issues whether the. trial court was in finding correct no genuine issue mate rial fact that the financial projections illegal were as matter law under the securities law.

Our review of the record leads us the conclusion that the trial court erred when it found issue of material con cerning defendants’ allegations that the contained material misstatements which made the projections misleading and ille gal under Rule 10b—5. Material misstatements are ones which contain untrue statements of material fact omissions of material facts neces or. sary made, order to make the light statements the circum stances under which they made, were not misleading. (Eisenberg v. Gagnon (3d 1985), Cir. 770; §240.10b-5, 766 F.2d (b) C.F.R. par. (1979).)The trial court, in its motion, order granting defendants’ relied solely on the deposition plaintiff’s its con expert support findings cerning the projections. Kramer, gave Plaintiff’s expert, Yale concern- testimony which indicated

deposition therefore, He and, stated unreliable. ing income were inconsistent part: relevant doing your

“Q. analysis Now defendants]: [Counsel that, such as would discrepancy come you disparity across in the circu- problem consider to be a material you lar? I Well, I did guess question why

A. first Kramer]: [Yale I feel I didn’t could do reason was because projections, rely upon projections. these

Q. you rely couldn’t on those Why projections? *6 in felt A. there that I Because there were inconsistencies made projections unreliable.

Q. are, in accurate? your your opinion, Now projections reasonable, my in Well, A. are much more projections my opinion.

Q. in the circular unreasona- projections Are those ble? Well, unreliable, to the extent

A. those are projections I reliable, guess that not unreasonable. they’re they’re actu- Q. that reflect what they truly Then don’t you believe in that ally happened company? would have projections.” A. That’s I new why prepared he or “incon- Yale believed were “errors” Kramer also discussed what used in the made costs and other factors assumptions sistencies” about then oc- following exchange The develop projections. the financial (cid:127) curred: that, ‘Stores will break “Q. statement above What about the a projected and attain operation six months of even for the first that statement true?” level thereafter.’ Was income operating made by plaintiff.] [Referring projections this I some of doing with A. I tested that. That’s what In projection. was a realistic And I that July 31st stuff. this felt that it fact, that was conservative thought probably I I. profit. make a thought they could minus I now. That cost by profits what mean Understand allocation, cetera, et management the expenses any before fact, would, (Emphasis added.) profit.” show the trial court’s support A does not deposition of Yale Kramer’s review finan- to whether the fact as that there no issue of material finding misstatements. cial contained material projections inferences also raises testimony of defendants deposition these did not contain material misstatements which made projections them One of the at misleading. deposition defendants testified his 14, 1981, the offering circular contained produced November issue, the same projections complied at with all se applicable underwriters, addition, curities law. as In accountants and the well as defendants, matters, experienced who claimed to be in SEC relied on these very projections throughout dealings soliciting investors, without ever indicating projections contained mate rial misstatements which misleading. made them Defendants’ deposi tion and the involved, reliance all parties light construed in the most favorable to the to an nonmoving party, leads inference that did not contain material misstatements. con We clude the trial court erred in finding genuine that no issue of material as existed to whether or contained material misstatements which made the financial projections mislead ing. Therefore, we must reverse and for further proceedings. remand Bauer v. City Chicago (1985), 137 Ill. we

Although conclude that the trial court committed reversible error in finding fact, issue of material con last.issue cerning the proper application SEC Rule likely 10b—5 arise again We, at therefore, 10b, trial. address this issue. Section ap *** plies to sellers, both buyers and it makes “unlawful for any person use or employ, connection with the purchase any [t]o sale secu ***, rity any manipulative or deceptive or contrivance in device .contra vention of such rules and as regulations the Commission may prescribe necessary appropriate in the or for public interest the protection *7 of (15 investors.” U.S.C. to its §78j(b) (1982).) rulemaking Pursuant power section, 5, under this promulgated the SEC Rule 10b— now provides:

“It shall person, be unlawful for directly indirectly, by or any the of any commerce, use means .or of instrumentality interstate or of the mails or of of any facility any national securities ex- change, scheme, To

(a) any device, defraud, or employ artifice to To any make or to untrue statement a material (b) of fact omit to state a in necessary order to make the material made, statements in the the circumstances under light of made, which they were not misleading, or (c) engage act, To in any practice, or course business or operates any a fraud or operate would deceit person, in or any connection with the sale of secu purchase rity.” (Emphasis added.) 17 (1979). C.F.R. §240.10b—5 614 regulated are by paragraph

The at issue projections v. F.2d (Eisenberg Gagnon (b) (3d 1985), 770.) Cir. 766 of Rule 10b—5. concerning performance plaintiff’s Financial the future projections were in there a substantial operations material statements that the that a would have considered state likelihood reasonable investor in the in or not to invest offer important ments a decision whether Industries, 438, Inc. v. Inc. ing. (TSC Northway, (1976), 426 U.S. 48 L. Kramer, 757, 2126.) 96 S. Yale in his expert, Ed. 2d Ct. Plaintiff’s stated that the financial would be material deposition, projections dispute the decision to invest. Plaintiff does not this conclusion. We the that the ruling conclude trial court correct of SEC meaning are material statements within Rule projections 757, 438, 426 U.S. 48 L. Ed. 2d 96 S. Ct. 2126. 10b-5. trial following

For the we assume that court analysis, not err but that the financial con finding did was correct them misleading. material which made trial tained misstatements court, in order to properly granted summary judgment, have would any have had to rule as a material misstatements law matter scienter for a were with the requisite made & v. 425 (Ernst Ernst Hochfelder of Rule U.S. violation 10b—5. (scienter necessary is a element 47 L. Ed. 2d 96 S. Ct. 1375 for negligent Rule 10b—5 can be liability, liability imposed action,, alone).) a section cause must conduct Under 10b a material with actual knowl prove that made misstatement party re (In Warner in reckless truth. edge falsity disregard of its or Litigation Communications Securities 1985), 618 F. (S.D.N.Y. Supp. (1) (2) with (plaintiff materiality must prove deceive, actual ma held such material information either with intent defraud, disregarded or facts nipulate recklessly or defendant An or issued without consequences).) opinion projection if made is an statement which know belief or reasonable basis untrue v. Eisenberg recklessly under Rule 10b—5. culpable is conduct ingly Gagnon (3d F.2d 1985), Cir. 766 projec

It is errors in the financial findings clear that granting as a matter of law support tions are sufficient scienter needed finding requisite A also judgment. violate Rule financial projections before material misstatements v. 185, 47 L. Ed. (Ernst & Ernst 10b—5. U.S. Hochfelder Gagnon (3d 1985), 766 F.2d Eisenberg 1375; S. Ct. Cir. actionable, must misleading financial be (materially projections, Defendants, truth).) disregard in reckless be made knowingly *8 scienter and state brief, the issue directly in their fail to address an As indi “untrue” statement is sufficient for a Rule 10b—5 violation. herein, law, defendants, including by cated the case cited authority that more an untrue or inaccurate clearly establishes than projection issue a violation of at could be before Rule (17 (1979).) 10b—5. C.F.R. the financial Assuming §240.10b—5 were, therefore, projections contained material misstatements mis leading, the trial court erred in that the record in instant case does not support finding, law, as a matter of or not the plain of whether scienter tiff had the If requisite a Rule 10b—5 violation. the finan cial projections are later found to contain material misstatements which are misleading, this fact could admit several different conclu requisite scienter for a Rule sions not meet may may In re Warner Communications Securities Liti 10b—5 violation. (See gation (S.D.N.Y. 1985), 618 F. Supp 735.) illegality depend would conclusions were drawn fact finder the evidence presented from at trial. Where facts admit conclusion, more than one including a conclusion unfavorable movant, such facts cannot support summary judgment. Harris v. Beth lehem Corp. Steel

Defendants’ motion to vacate the November order of this court allowing plaintiff to file a reply corrected brief is denied.

We reverse the circuit court of Lake County remand for fur- ther proceedings.

Reversed and remanded. JJ., and WOODWARD,

DUNN concur. SUPPLEMENTAL OPINION ON DENIAL OF REHEARING PRESIDING JUSTICE LINDBERG delivered the opinion court: ask appropriately us address argument, which brief, raised in

they affirming their grant the trial court’s of sum- mary judgment of the breach contract count. Defendants contend the trial court’s grant of favor on plaintiff’s because, breach contract claim be should affirmed law, matter of an attorney owing sued for a may only duty be breach to a client under malpractice and not contract. not agree. We do

The authority cited defendants does not stand for their contention. Defendants’ authority concerns characterization of the facts of an underlying breach of to a attorney’s duty owed client of the statute limitations application purposes interpreting *9 Brainard v. Brown legal of a claim. See assignability malpractice of limitations 287, (statute govern 91 458 N.Y.S.2d 735 (1983), A.D.2d is attorney’s neg where of suit ing legal malpractice applies gravamen unspecific a oral retainers de ligence, drawing distinction between v. Christison Jones duties); specific tailed contracts outline confiden 334, (due 83 3d 405 8 (1980), App, personal Ill. N.E.2d claim is relationship, malpractice legal tial nature of attorney-client bank estate under Federal nonassignable bankrupt’s and not part 604, v. 934, ruptcy law); Yates Muir (1985), App. Ill. 3d 130 205, rev’d on other 112 492 N.E.2d 1267. grounds (1986), Ill. 2d for has stated all the elements plaintiff concede case, alleged sepa claim. In the instant plaintiffs breach contract initially retaining rate entered over a after defendants agreement year work legal legal as counsel for defendants to do involved $25,000 for paid circular. Defendants were to be a flat fee offering limited, Plaintiff legal work circular. is facts, malprac to sue under a only a matter of law under these Allen v. theory. under of contract theory, may tice but also sue a breach Komajda (basis 456 of action 130 Ill. 2d (1970), App. contract, but where breach malpractice in medical is tort rather than is then be in promise by alleged may contract); action express physician Associates, Inc. v. Del Bianco & (1978), 57 Ill. Board Education (where exists employment 3d 372 N.E.2d 953 contract App. in the course of including employment to be performed duties in the course of contract, duty of the breach subject constitute v. contract); authorize tort or employment may recovery Cundiff tort and Unsicker (where 454 N.E.2d 1089 facts, proceed arise same free contract action from Brainard Brown either A.D.2d theory); with N.Y.S.2d 735.

Therefore, reject argument trial court’s we defendants’ should be on the contract count grant breach arguments petition other affirmed. find merit defendants’ We rehearing. rehearing denied. Petition WOODWARD,JJ., concur. DUNN