THE PEOPLE OF THE STATE OF ILLINOIS ex rel. NEIL F. HARTIGAN et al., Appellees and Cross-Appellants, v. E & E HAULING, INC., et al., Appellants and Cross-Appellees.
No. 72413
Supreme Court of Illinois
December 4, 1992
JUSTICE CLARK delivered the opinion of the court:
On January 31, 1989, Illinois Attorney General Neil Hartigan and the Illinois Department of Transportation (the Department) filed a 21-count amended complaint against 23 separate defendants. All of the defendants were construction contractors who had participated in construction of the McCormick Place Annex or in various State highway construction projects. Counts I through XV were brought by the Attorney General on behalf of the People and taxpayers of the State of Illinois. In these counts, the Attorney General alleged various acts of common law fraud, violations of the Consumer Fraud and Deceptive Business Practices Act (
Counts XVI through XVIII were brought by the Attorney General and the Department. These counts alleged common law and statutory fraud as well as breach of contract relative to highway construction projects. Count XVIII, which alleged breach of contract, is not part of this appeal.
The defendants included the following entities who are parties to this appeal: E & E Hauling, Inc.; its successor, American Environmental Construction Company; Edward Heil, individually and as director of E & E and American Environmental; George Schiewe, individually
The trial court granted defendants’ motions to dismiss under
Before discussing the sufficiency of the complaint, we must first consider defendants’ contention that the Attorney General has no standing to assert claims relating to the Authority‘s contracts. The standing doctrine assures that issues are presented to a court only by parties who have a sufficient stake in the outcome of the controversy. (Harris Trust & Savings Bank v. Duggan (1983), 95 Ill. 2d 516, 527, citing Sierra Club v. Morton (1972), 404 U.S. 727, 31 L. Ed. 2d 636, 92 S. Ct. 1361.) Absent the necessary allegations of interest in the controversy, a party lacks standing to sue.
The Authority is a public corporation established by the Metropolitan Fair and Exposition Authority Act (
The Attorney General brings this action “on behalf of the people and taxpayers of Illinois,” and he asserts three bases for his standing to bring this suit. First, he argues that he has standing under the common law powers delegated to him by the Illinois Constitution. Second, he argues the legislature has provided standing under the statutory powers of his office. Third, he argues that a taxpayer would have standing to bring this suit and, therefore, he has standing as the representative of all the taxpayers of this State. Because we be-
Article V, section 15, of the
“The Attorney General shall be the legal officer of the State, and shall have the duties and powers that may be prescribed by law.”
In Fergus v. Russel (1917), 270 Ill. 304, this court held that the Attorney General has all the common law powers incident to that office. In Fergus, this court stated:
“[T]he Attorney General is the chief law officer of the State, and the only officer empowered to represent the people in any suit or proceeding in which the State is the real party in interest, except where the constitution or a constitutional statute may provide otherwise.” (Fergus, 270 Ill. at 342.)
In addition to representing the State and its agencies, the Attorney General is responsible for representing the broader interests of the State. (Environmental Protection Agency v. Pollution Control Board (1977), 69 Ill. 2d 394, 401.) Further, although the legislature may add to the Attorney General‘s common law powers, it may not detract from them. The holding of Fergus was incorporated into the Illinois Constitution of 1970. People ex rel. Scott v. Briceland (1976), 65 Ill. 2d 485; Stein v. Howlett (1971), 52 Ill. 2d 570.
In examining the scope of an attorney general‘s common law powers, one court noted they are “as broad as the ‘protection and defense of the property and revenue of the state,’ and, indeed, the public interest requires.” (State of Florida ex rel. Shevin v. Exxon Corp. (5th Cir. 1976), 526 F.2d 266, 271.) The Attorney General has the common law duty to protect the public purse as a matter of general welfare. (State of Illinois v. Bristol-Myers Co. (D.C. Cir. 1972), 470 F.2d 1276, 1278.) Thus, at common law, an attorney general had “complete authority as the representative of the State or any of its political subdivisions ‘to recover damages [whether under state or federal law] alleged to have been sustained by any such agency or political subdivisions,’ even though those subdivisions may not ‘have affirmatively authorized suit.‘” Nash County Board of Education v. Biltmore Co. (4th Cir. 1981), 640 F.2d 484, 494.
In State of Illinois v. Brunswick Corp. (1963), 32 F.R.D. 453, the court considered whether the Illinois Attorney General had standing to assert claims belonging to incorporated public school districts. The court stated:
“[T]he Attorney General in this instance has authority not only to represent the State of Illinois as proprietor of State institutions which are not incorporated, but also those which are incorporated with powers to sue and be sued, especially where those corporations fail to exercise those corporate powers and the funds of the State have been utilized for their support ***.” Brunswick, 32 F.R.D. at 456.
Defendants rely on this court‘s opinion in People ex rel. Board of Trustees of the University of Illinois v. Barrett (1943), 382 Ill. 321. Barrett was a mandamus action in which the Board of Trustees and two of its attorneys sued the Attorney General to prevent him from interfering with the attorneys’ representation of the University. The Attorney General argued that as the State‘s chief law officer, he alone had the authority to represent the University in all legal matters. This court rejected the Attorney General‘s argument in Barrett and held that because the University of Illinois was a public corporation the Attorney General was not authorized to represent the University. This court stated:
“Neither the constitution nor the statutes, however, have conferred upon the Attorney General the power, or im-
posed upon him the duty, to represent public corporations, their managing trustees or other officers. No such powers or duties existed at the common law.” Barrett, 382 Ill. at 347.
Defendants argue that Barrett clearly precludes the Attorney General from bringing the instant action. However, Barrett did not consider the issue of standing. In Barrett, this court decided only whether the Attorney General could impose his representation on a public corporation which objected to that representation. In this case, the Authority has not objected to this suit.
It is significant that the Attorney General does not purport to represent the Authority, but rather the People and taxpayers of the State. The importance of this distinction is evidenced by the following passage in Barrett:
“As the managing or governing body of the university and all its property, clearly it would be the duty of the Attorney General to institute all proceedings against the corporation, and its officers and trustees, to either prevent or redress any breach of the trust. He would do this as the representative of the State and not as the representative of the corporation and its trustees.” (Barrett, 382 Ill. at 347.)
Thus, Barrett is inapposite.
“It has long been the rule under the common law that the Attorney General may not appear in cases in which the public generally is not interested.” (People ex rel. Lowe v. Marquette Fire Insurance Co. (1933), 351 Ill. 516, 527.) In this light, we note that the State of Illinois has an interest in the property of all of its political subdivisions. (See County of Stark v. County of Henry (1927), 326 Ill. 535, 537, 538 (“The whole State has an interest in the revenue of a county ***“; “Public highways, and bridges on them, do not belong to the counties and towns which construct them but are held by them in trust for
CONSUMER FRAUD ACT
Defendants next contend that the appellate court erred in finding that the Consumer Fraud Act (
In support of this argument, defendants cite this court‘s opinion in Board of Education v. A, C & S, Inc. (1989), 131 Ill. 2d 428, wherein this court held the plaintiff school districts could not assert a claim under the Consumer Fraud Act. In A, C & S, the trial court dismissed the plaintiffs’ Consumer Fraud Act claims due to a lack of standing. On review, this court examined the definition of “person” contained in the Act and held:
“[T]he legislature is aware of how to include a body politic within the definition of ‘person’ or ‘corporation,’ and we believe that its failure to do so in the Consumer Fraud Act shows an intent not to include them within the definition of persons who may sue based on the Act.” (A, C & S, 131 Ill. 2d at 469.)
The definition of “person” was important because that term is used in section 10a of the Consumer Fraud Act
However, with respect to the Attorney General‘s standing to bring this action, A, C & S is not controlling. “A person‘s status as a consumer relates to his or her standing to sue as an individual under the Consumer Fraud Act,” but is irrelevant to the Attorney General‘s standing to bring a suit. (People ex rel. Daley v. Datacom Systems Corp. (1991), 146 Ill. 2d 1, 32.) The Attorney General‘s standing to assert a claim under the Act comes from section 7 (
“§7. Whenever the Attorney General or a State‘s Attorney has reason to believe that any person is using, has used, or is about to use any method, act or practice declared by *** this Act to be unlawful, and that proceedings would be in the public interest, he or she may bring an action in the name of the People of the State against such person ***.” (
Ill. Rev. Stat. 1987, ch. 121 1/2, par. 267 .)
Under section 7, the Attorney General is not limited in regard to whose interests he may seek to protect under the Act. Datacom, 146 Ill. 2d at 30.
Nothing in section 7 indicates that the defrauded party must be a consumer or “person” in order for the Attorney General to have standing, nor will we read such a requirement into that section. In Datacom, the Attorney General asserted a claim on behalf of individuals owing fines to the City of Chicago for parking violations. Although the alleged parking violators were not
As this case concerns large public works contracts, the Attorney General could reasonably conclude that this action is in the public‘s interest. Under section 7, we must now consider whether the Attorney General has reason to believe there has been a violation of the Act. Section 2 of the Act provides the following:
“§2. Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact, or the use or employment of any practice described in Section 2 of the ‘Uniform Deceptive Trade Practices Act‘, approved August 5, 1965, in the conduct of any trade or commerce are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby. In construing this section consideration shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to Section 5(a) of the Federal Trade Commission Act.” (Emphasis added.) (
Ill. Rev. Stat. 1987, ch. 121 1/2, par. 262 .)
It is not disputed that the defendants’ actions were committed “in the conduct of [a] trade or commerce.” Moreover, the Attorney General alleges that defendants made material misrepresentations in their dealings with the Authority and the Department. Thus, all the requirements of section 7 have been met, and the Attorney General has standing to bring claims under the Act, even though the allegedly defrauded parties were governmental units.
Having established that the Attorney General has standing to sue, we now turn to the sufficiency of the complaint. The Attorney General appeals from that portion of the appellate court decision which affirmed the trial court‘s dismissal of counts I, II, and V through XIII for failure to state a cause of action. Defendants appeal from the appellate court‘s reversal of the trial court‘s order with respect to counts III, IV, and XIV through XVII. For simplicity‘s sake, we will review each count sequentially regardless of which party is challenging the appellate court‘s ruling.
Because this case comes to us on a motion to dismiss, we must determine whether the complaint, when viewed in the light most favorable to the plaintiffs, alleges facts sufficient to establish a cause of action on which relief may be granted. (Ziemba v. Mierzwa (1991), 142 Ill. 2d 42, 46.) All well-pleaded facts in the complaint will be taken as true. Ziemba, 142 Ill. 2d at 47.
MBE Provisions of the Authority‘s Site Preparation Contracts
Counts I and II were brought by the Attorney General against defendants E & E Hauling, E & E‘s director Heil, E & E‘s agent Schiewe, Leininger Mid-States Paving, Leininger‘s agent Zawacki, Lo-Mar, Lo-Mar‘s president Melesio and Nu-Way‘s vice-president Schreiner. These counts alleged that in 1984, the Authority contracted with E & E for site preparation work at the McCormick Place Annex. As a condition of these contracts, E & E agreed to employ certain specified percentages of minority business enterprises (MBEs) and women business enterprises (WBEs).
In count I, the Attorney General asserts a common law fraud claim. Count I alleges that defendants “withheld and concealed from the [Authority] the actual facts in their possession which would have disclosed or led to disclosure of E & E‘s noncompliance” with the MBE and WBE provisions of the contract. Count I also alleges that the misrepresentations in the sworn statements and lien waivers were made “for the purpose of deceiving and defrauding the [Authority in order] to induce the [Authority] in reliance thereon to pay E & E.” The complaint alleges that as a result of these misrepresentations, bona fide MBEs and WBEs were deprived of work, other contractors were prevented from obtaining the contract with the Authority and E & E improperly received payments to which it was not entitled.
In order to state a cause of action for common law fraud, a complaint must allege “(1) a false statement of material fact, (2) knowledge or belief of the falsity by the party making it, (3) intention to induce the other party to act, (4) action by the other party in reliance on the truth of the statements, and (5) damage to the other party resulting from such reliance.” (A, C & S, 131 Ill. 2d at 452.) Further, “a complaint ‘must plead sufficient acts or facts relied upon to establish the fraud’ (Hart v. Brown (1949), 404 Ill. 498, 503), and fraud must be a necessary or probable inference from the facts alleged.” Glazewski v. Coronet Insurance Co. (1985), 108 Ill. 2d 243, 249.
We agree with the appellate court that count I was properly dismissed because it “contain[s] no allegations supporting the conclusion that the representations contained in the waivers were fraudulent or that injury resulted from the Authority‘s reliance on them.” (218 Ill. App. 3d at 40.) Count I does not allege that incorrect documents were submitted as an inducement for the Authority to enter into the contract. Although count I alleges that the documents were submitted to avoid detection of E & E‘s alleged noncompliance with the MBE and WBE provisions of the contract, that count contains no facts which show the MBE and WBE provisions were actually violated. For example, count I does not contain allegations regarding the MBE requirements under the contract, which subcontractors are MBEs and WBEs, or that the amounts actually paid to subcontractors were insufficient to meet these requirements. We note that elsewhere in the complaint Lo-Mar is identified as a purported MBE. If, as count I alleges, Lo-Mar received more than the amount indicated in the lien waiver, it is difficult to see how the lien waiver concealed E & E‘s noncompliance with the MBE provisions of the contract, or deprived MBEs of work to which they were entitled. Without specific allegations of facts which show a connection between submission of the inaccurate lien waivers and some injury to the Authority, count I was properly dismissed.
Similarly, we believe count II was also properly dismissed. In count II, the Attorney General alleges that defendants committed acts of unfair competition under the Consumer Fraud and Deceptive Trade Practices Act (
Counts III and IV were brought against E & E, Heil, Schreiner, Leininger, Leininger‘s managing agent Peter Palumbo, its president Joseph Palumbo, its agent Tessarolo, Lo-Mar, Melesio and Lois Nugent. These counts allege that under its contract with the Authority, E & E agreed to employ a certain percentage of MBEs and WBEs who would perform a “commercially useful function.” Pursuant to the contract, defendant Heil, acting on behalf of E & E, submitted a sworn statement indicating that Lo-Mar would perform $300,000 in work and that Nu-Way, a purported WBE, would perform $40,000 in work. The complaint alleges that at the time of this statement, Heil knew that Leininger, a nonminority firm, would perform Lo-Mar‘s work and that an unnamed, nonminority, nonwomen firm would perform Nu-Way‘s work.
Counts III and IV also allege that defendant Melesio, acting on behalf of Lo-Mar, represented that Lo-Mar would not subcontract any portion of its work. Despite these representations, the complaint alleges that Lo-Mar received $348,652.71 for its portion of the work, that it
Counts III and IV allege that E & E, Lo-Mar, Leininger and Nu-Way made these representations for the purpose of deceiving and defrauding the Authority, and to induce the Authority to rely on these representations in awarding the contract to E & E. Counts III and IV also allege that the Authority reasonably relied on these misrepresentations, and that had the Authority known the truth it would not have awarded the contract to E & E or paid E & E under the contract.
Defendants argue that the Authority suffered no damages as a result of their failure to comply with the MBE and WBE provisions. Defendants contend that the Authority received what it paid for, i.e., the site preparation work, and that if it had not paid defendants for this work it would have paid someone else for it. Defendants contend that since the complaint does not allege that the Authority was overcharged for the work, that the work was not satisfactorily completed or that absent the misrepresentation it would have paid other contractors less, the Authority has suffered only an intangible loss. This argument ignores the fact that the complaint alleges that defendants breached the MBE and WBE provisions of the contract and then undertook to conceal that breach through misrepresentation.
Based on the contract and the allegations in the complaint, the parties considered the MBE-WBE provisions to be material. The contract stated that failure to comply with the MBE-WBE provisions would constitute a breach of the contract and result in “termination of the contract or such remedy as deemed appropriate.” The complaint alleges that defendants employed a scheme of misrepresentation and deceit to conceal their noncompli
Counts V, VI and VII were brought against E & E and Heil and relate to a letter Heil sent to the Authority. The complaint alleges that in a meeting with E & E representatives, the Authority demanded “a statement from E & E Hauling so that [the Authority] could verify that E & E had complied with [the Authority‘s] minority and women business enterprise program.” Specifically, the Authority stated that it would not pay E & E an installment of $133,353.62 unless E & E provided a statement indicating “the amounts received by Leininger, Lo-Mar, and Nu-Way and whether those amounts were in connection with work on the base contract or change orders on the site preparation job.” In response to this demand, Heil sent a letter which contained the following chart:
| Base Contract | Change Order | Total | |
|---|---|---|---|
| $1,298,000.00 | $977,908.86 | $2,275,908.86 | |
| [LABOR] | |||
| E & E | 762,543.00 | 178,480.00 | 41,023.00 |
| Nu-Way (WBE) | 12,800.00 | NONE | 12,800.00 |
| Lo-Mar (MBE) | NONE | NONE | NONE |
| [MATERIALS] | |||
| E & E | 195,457.00 | 549,428.86 | 744,885.86 |
| Leininger | NONE | 250,000.00 | 250,000.00 |
| Nu-Way (WBE) | 27,200.00 | NONE | 27,200.00 |
| Lo-Mar (MBE) | 300,000.00 | NONE | 300,000.00 |
The complaint alleges the letter contained four mate
The appellate court considered each of the four alleged misstatements and found that the letter did not support plaintiffs’ allegations. (218 Ill. App. 3d at 42-43.) The appellate court correctly noted that a motion to dismiss does not admit facts alleged in a complaint when those allegations are contradicted by facts contained in an exhibit. (218 Ill. App. 3d at 43.) Based on its finding that the allegations in the complaint were inconsistent with the letter, the appellate court upheld the dismissal of counts V and VI, which alleged common law misrepresentation and violation of the Consumer Fraud Act respectively.
While we do not disagree with the legal basis for the appellate court‘s decision, we disagree with the finding that the letter contradicts the complaint. The appellate court found that the letter showed Lo-Mar received nothing for its “labor” and, therefore, the letter contradicts plaintiffs’ claim that Lo-Mar received $300,000 for its “work.” The appellate court‘s conclusion in this regard is based on an unreasonably restrictive interpretation of “work” as that phrase is used in the complaint. The appellate court improperly reads the complaint and letter as if “work” entails nothing more than “labor.” It
Similarly, the appellate court took a narrow interpretation of the letter when it found the letter was silent as to the amount of work done by Leininger on the base contract. Again, the appellate court‘s interpretation was based on the assumption that “work” and “labor” were completely synonymous. Moreover, we note that the numbers supplied by Heil in the letter necessarily imply that Leininger received no payments under the base contract. If, as the complaint alleges, Leininger did all of Lo-Mar‘s work and received payment for that work, then the letter is misleading. In addition, the complaint alleges Leininger received total payments of $653,340.29 while the letter states the company received only $250,000. Again, we believe the allegations in the complaint are not contradicted by the letter.
With respect to Nu-Way, the appellate court found that the complaint alleges “only that Nu-Way did no work on the project, not that the letter misstates the amount Nu-Way was paid.” (218 Ill. App. 3d at 43.) This statement ignores the fact that the complaint also alleges Nu-Way “served as an illegal conduit for paying a nonwomen, nonminority firm.”
While complaints for fraud must plead specific facts, the semantical precision on which the appellate court based its opinion is not required. Because we are reviewing an order on a section 2-615 motion, all reasonable inferences from well-pleaded facts must be drawn in plaintiffs’ favor. With this in mind, we find that counts V and VI state causes of action under the common law and Consumer Fraud Act respectively.
On the other hand, count VII, which asserts a claim for unjust enrichment based on the letter, does not set
Illegal Dumping by E & E
The Attorney General next challenges the appellate court‘s decision to affirm the dismissal of counts VIII and IX. These counts were brought against E & E and Heil, and relate to the disposal of materials from excavation activities at the McCormick Place Annex. Counts VIII and IX allege that as part of its contract with the Authority, E & E was required to dispose of all materials legally. Despite this requirement, the complaint alleges that E & E dumped some materials into the Mallard Lake landfill without preparing the required documentation or paying the appropriate charges to the Du Page County Forest Preserve District. Further, the complaint alleges E & E illegally dumped unsuitable materials in a landfill which Terra Excavating, Inc., leases from Illinois International Port District.
Count VIII asserts a claim for unjust enrichment based on the allegedly illegal dumping. The appellate court affirmed the dismissal of this count based on the
The Attorney General is correct that a contract between E & E and the Authority does not necessarily preclude an unjust enrichment claim on behalf of the two landfills. We note, however, that the complaint alleges no facts which give the Attorney General standing to assert this claim. The complaint contains no allegations of fact regarding who owns the Mallard Lake landfill. Similarly, although the complaint alleges that the Terra Excavating landfill is leased from the Illinois International Port District, it does not allege that the Port District is a State agency or that the District is responsible for cleaning the site. Without such allegations, the Attorney General has no standing to assert an unjust enrichment claim on behalf of the landfills.
Count IX asserts a claim under the Consumer Fraud Act for the alleged illegal dumping. In addition to the facts alleged in count VIII, count IX alleges that E & E “concealed, suppressed, or omitted the material facts that it was illegally disposing of excavation materials” and that E & E intended that the Authority would believe that E & E was legally disposing of the material. Count IX does not allege any misrepresentation, it merely alleges that E & E did not comply with a contract provision and did not voluntarily disclose this noncompliance. While the complaint alleges that E & E polluted the Terra Excavating landfill and wrongfully deprived the forest preserve district of funds, the complaint does not allege that E & E performed any act in
Count IX also alleged that E & E was able to underbid its competitors because it did not legally dispose of excavated material. The Attorney General argues that this constitutes unfair competition under the Consumer Fraud Act and, therefore, count IX states a cause of action. Because count IX alleges no facts which support a conclusion that E & E was able to underbid competitors, we reject this argument. We agree with the appellate court that count IX does not allege facts with sufficient specificity to state a cause of action under the Consumer Fraud Act.
Delivery of Materials
Counts X and XI were brought against Leininger, its president Joseph Palumbo, Coke Contracting, its president Sam Alberto and its agent Tom Alberto. Counts X and XI allege that Coke submitted four invoices to Leininger requesting payment for hauling tunnel stone to McCormick Place. After Leininger received these invoices, Palumbo called Coke and stated Leininger would not pay unless the invoices were altered to show that another type of stone was delivered to the Department‘s Eisenhower project. Coke then submitted four new invoices reflecting the requested changes and Leininger paid Coke the amount on the invoices. The complaint alleges that as a result of the altered invoices government agencies “apparently have paid for materials they never received.”
Count X asserts a claim for common law misrepresentation. The appellate court correctly dismissed this count because it contains no allegations that the alleged mis
Similarly, count XI fails to state a cause of action for violation of the Consumer Fraud Act. Count XI fails to allege that defendants intended to induce reliance and, therefore, this count was properly dismissed.
Counts XII and XIII allege that the Attorney General subpoenaed documents from Leininger concerning the delivery of stones to McCormick Place. In response to this subpoena, Leininger submitted check vouchers which contained Leininger‘s job numbers. Later, Leininger also submitted a list of job numbers and the corresponding job description. Counts XII and XIII allege that the job numbers contained on the checks for McCormick Place do not correspond to the list of jobs.
Count XII asserts a claim for common law fraud and count XIII asserts a claim under the Consumer Fraud Act. As the appellate court noted, neither of these counts alleges that defendants intended to induce reliance or that any party in fact relied on the alleged misrepresentation. Therefore, both counts were properly dismissed.
MBE Provisions of Concrete Contracts
Counts XIV and XV were brought against the contractors responsible for supplying concrete to the Authority. The defendants included Paschen Contractors International; Paschen Contractors Associates, Inc.; Paschen Contractors, Inc.; Gust K. Newberg Construction Company; Paschen-Newberg Joint Venture; Hi-Gate Erectors, Inc.; Gateway Construction Company, Inc.; George N. Weiland, Jr., individually and as an officer of
Counts XIV and XV allege that Paschen-Newberg received the primary concrete contract. Under this contract Paschen-Newberg was required to employ a certain percentage of MBEs. In order to meet this requirement, Paschen-Newberg hired Hi-Gate and represented that this firm was a bona fide MBE. Hi-Gate is a corporation whose stock is owned by two other corporations: Gateway, a nonminority firm, owned 49% of the stock and Highway Safety, a minority firm, owned 51% of the stock. Melesio owned all of Highway Safety‘s stock and was president of the corporation. Weiland was a vice-president and director of Hi-Gate, owned all of Gateway‘s stock and was that corporation‘s president. Because the allegations against Weiland and Gateway are somewhat different than those against Melesio and Hi-Gate, we will address the defendants separately.
The complaint alleges that Hi-Gate and Melesio submitted an affidavit of MBE status to the Authority. This affidavit was incorrect in that it failed to include $100,000 of investments and advances made by Gateway in and to Hi-Gate; omitted tens of thousands of dollars of equipment rental by Hi-Gate from Gateway; and omitted several instances in which Hi-Gate, Melesio and Highway Safety were denied MBE certification by government agencies. The complaint alleges that the misrepresentations were material, that defendants intended these misrepresentations to induce reliance by the Authority and that the Authority in fact did rely on these misrepresentations to its detriment.
Count XIV asserts a common law fraud claim and count XV asserts a claim under the Consumer Fraud
We now address Weiland‘s and Gateway‘s contention that the complaint is not sufficient to state a cause of action against them. These defendants argue that they cannot be held accountable for the actions of Melesio and Hi-Gate because there is no allegation that they participated in or had specific knowledge of the misrepresentations. The general rule with respect to a corporate officer‘s liability for the fraudulent acts of a corporation was set forth in Murphy v. Walters (1980), 87 Ill. App. 3d 415. In that case, the appellate court stated:
“The mere fact that a person is an officer or director does not per se render him liable for the fraud of the corporation or of other officers or directors. He is liable only if he with knowledge, or recklessly without it, participates or assists in the fraud.” Murphy, 87 Ill. App. 3d at 418-19, quoting Citizens Savings & Loan Association v. Fischer (1966), 67 Ill. App. 2d 315, 322-23.
The complaint alleges that Gateway assisted in the preparation of Hi-Gate‘s affidavit, and that Gateway knew or was reckless in not knowing that the information was incorrect. In addition, the complaint alleges that Weiland was a vice-president and director of Hi-Gate and that he “instituted the policies complained of in this case and has been and continues to be responsible for establishing, supervising, directing, and controlling the business activities and practices of Hi-Gate Erectors, Inc. and Gateway Construction Co., Inc.” Taking these allegations as true, the complaint is sufficient to hold Weiland and Gateway liable for the misrepresentation in Hi-Gate‘s MBE affidavit.
Counts XVI, XVII and XVIII were brought by the Attorney General and the Department against Leininger, Lo-Mar, Melesio, Robert R. Anderson Company, Lo-Mar‘s vice-president and director Lois Nugent, Lo-Mar‘s agent Betty Kitterman and James R. Nugent, who was both an agent of Lo-Mar and former vice-president of Robert R. Anderson Company. Count XVI asserted a common law fraud claim while count XVII asserted a claim under the Consumer Fraud Act. Count XVIII is not a part of this appeal.
Counts XVI and XVII allege that the Department entered into two separate contracts with Anderson and one contract with Anderson and Leininger. All three contracts related to repair work on highways operated and maintained by the Department. As part of these contracts, Anderson and Leininger agreed to employ MBEs. Anderson and Leininger entered into subcontracts with Lo-Mar for work on all three primary contracts and represented to the Department that Lo-Mar was a bona fide MBE.
Melesio owned 55% of the Lo-Mar stock and Lois Nugent owned the remaining 45%. The complaint alleges that Lois’ husband James Nugent, a vice-president of Anderson, managed the operations of Lo-Mar. In addition, the complaint alleges that Lo-Mar owned little or no equipment, that Lo-Mar‘s labor force consisted mostly of Anderson‘s employees, and that Lo-Mar repaid Anderson a large share of the amounts Lo-Mar received for its work on the Department contracts. Based on these facts the complaint alleges that Lo-Mar was not a bona fide MBE. The complaint further alleges that defendants’ representations were made to induce the Department‘s reliance.
CONSTITUTIONALITY OF MBE PROVISIONS
Defendants Weiland and Gateway contend on appeal that the Authority‘s minority set-aside program is unconstitutional under the Supreme Court‘s decision in City of Richmond v. J.A. Croson Co. (1989), 489 U.S. 469, 102 L. Ed. 2d 854, 109 S. Ct. 706. In City of Richmond the Supreme Court held that States and municipalities may only enforce minority set-aside programs if there have been specific findings of past discrimination. City of Richmond did not establish a per se rule of invalidity. Rather, that case requires each minority set-aside program to be evaluated based on the evidence of past discrimination peculiar to the governmental entity enacting the program.
Weiland and Gateway argue that there has been no finding of past discrimination by the Authority and, therefore, the MBE provisions are unconstitutional. The appellate court refused to consider the merits of this argument because resolution of the issue would require consideration of facts not contained on the face of the complaint. (218 Ill. App. 3d at 49.) We agree with the appellate court that consideration of this issue is beyond the scope of defendants’ section 2-615 motion.
After the first-amended complaint was dismissed by the trial court, plaintiffs requested leave to file a second-amended complaint, which request the trial court denied. Plaintiffs did not tender a copy of the proposed amended complaint at that time. Instead, on August 24, 1989, plaintiffs filed a “Statement of Proposed Additions to Proposed Second Amended Complaint.”
The decision of whether to grant leave to file an amended complaint is within the sound discretion of the trial court. In considering whether a trial court abused its discretion, this court will consider (1) whether the proposed amendment would cure the defects in the original pleading; (2) whether the amendment would prejudice or surprise other parties; (3) whether the proposed amendment is timely; and (4) whether previous opportunities to amend the pleading can be identified. Loyola Academy v. S & S Roof Maintenance, Inc. (1992), 146 Ill. 2d 263, 273.
In its comments incorporated in the order denying leave to file a second-amended complaint, the trial court indicated that it did not believe the Attorney General could state a proper cause of action. The trial court based this conclusion on its view that the Attorney General lacked standing to bring the Authority‘s counts and that there were no damages as a result of the alleged misrepresentations. As we have answered these questions contrary to the trial court, it appears the decision not to grant leave to file a second-amended complaint was based on a misapprehension of the law. “[W]here the exercise of discretion has been frustrated by the application of an erroneous rule of law, review is required to permit the exercise in a manner ‘consistent with the law.‘” (People v. Brockman (1991), 143 Ill. 2d 351, 363, quoting People ex rel. Chesapeake & Ohio Ry. Co. v. Donovan (1964), 30 Ill. 2d 178, 181.) On remand, it will be necessary for the trial court to reconsider plaintiffs’ motion in light of our holdings today.
PLAINTIFFS’ MOTION FOR ADMINISTRATOR
While this case was pending review in the appellate court, defendant George Schiewe died. The Attorney General filed a motion in the appellate court for appointment of a special administrator for Schiewe‘s estate under section 2-1008(b) of the Illinois Code of Civil Procedure (
CONCLUSION
For the foregoing reasons, we agree with the appellate court‘s decision with respect to the issues of standing and constitutionality of the Authority‘s minority set-aside program. In addition, we affirm the appellate court‘s decision to affirm the circuit court‘s dismissal of counts I, II, and VII through XIII of the complaint and to reverse the circuit court as to its dismissal of counts III and XIV through XVII. We reverse the appellate court‘s decision to affirm the circuit court‘s dismissal of counts V and VI. We reverse the appellate court‘s decision to affirm the circuit court as to its refusal to allow the plaintiffs’ motion to amend the complaint and we remand for reconsideration of that motion. Finally, we affirm the appellate court‘s ruling on the Attorney General‘s motion to appoint an administrator for the estate of defendant Schiewe.
Appellate court affirmed in part and reversed in part; circuit court affirmed in part and reversed in part; cause remanded.
JUSTICE HEIPLE, dissenting:
I disagree with the majority‘s decision to remand several counts to the trial court. I would affirm the trial court‘s dismissal of the entire complaint.
First, the Attorney General does not have standing to bring this lawsuit. It is not within his common law or statutory powers to bring suit on behalf of a municipal corporation that could do so on its own. (People ex rel. Board of Trustees of the University of Illinois v. Barrett (1943), 382 Ill. 321, 332-45.) The majority distinguishes Barrett on the ground that here the public corporation that the Attorney General seeks to represent did not object. This reading of Barrett is too narrow. The appropriate rule of law is that a public corporation that has the power to hire its own attorneys and bring its own suits must affirmatively ask the Attorney General to intervene. This did not occur here.
Next, the Consumer Fraud Act (the Act) does not apply to the Metropolitan Fair and Exposition Authority (the Authority). This court‘s opinion in Board of Education v. A, C & S, Inc. (1989), 131 Ill. 2d 428, 467-69, is controlling on this point. The Authority, like the school districts in A, C & S, is a body politic and not a person who may bring suit under the Act.
Finally, the majority errs by not addressing the constitutionality argument. This issue is not beyond the scope of a section 2-615 motion. Further, the facts of this case are indistinguishable from the facts in City of Richmond v. J.A. Croson Co. (1989), 489 U.S. 469, 102 L. Ed. 2d 854, 109 S. Ct. 706, and therefore the Minority and Women Business Enterprise set-asides violate the equal protection clause of the United States Constitution and article I, section 18, of the Illinois Constitution.
Accordingly, I respectfully dissent.