wife]” and assert that Edward and Judith “never placed any conditions or qualifications before
making the . . . gift to [defendants].” John further alleges that he “expressly told [plaintiffs] that he
would not accept the gift if any conditions were placed thereon” and that Edward and Judith released
the Mortgage bencvolently in order to allow him to get a loan from the bank. According to
defendants, this action is the result ofa breakdown in the relationship between defendants and
Edward and Judith.
BREACH OF FIDUCIARY DUTY

The only unamended count surviving plaintiffs’ repleading of the complaint is the claim for
breach of fiduciary duty. Defendants asseri that no fiduciary duty exists between the parties on two
grounds: first, that a fiduciary relationship does not exist as a matter of law between a parent and
child, and in the altemative, that plaintiffs have not pled facts sufficient to support the existence of a
fiduciary duty. Although defendants are correct in that a fiduciary relationship “does not obtain
between a parent and child as a matter of law,” this alone is not grounds for dismissal, for a fiduciary
telationship between a parent and child may be shown with clear and convincing evidence that is “so
strong, unequivocal, and unmistakable as to lead to but one conclusion.” Clow v. Chicago Title and
Trust Co., 292 N.E,2d 44, 48 (Ill. App. 1972), What must be shown is a relationship “where one
person places so much trust and confidence in another that the person thereby gains a position of
superiority and influence over the other.” In the Matter of the Estate of Gimpel, 379 N.E.2d 940,
943 (Ill. App. 1978). Relevant factors include kinship, disparity in age, health, mental condition.
See Cacciatore v, Mobil Oil Corp., 2000 WL 1029168 (N.D. Ill. 2000). The facts alleged by
plaintiffs to establish the existence of a fiduciary relationship are: (1) plaintiff Edward T. Lipke and

defendant John F. Lipke are father and son and as such, “shared a familial rclationship and close

degree of kinship”; (2) at the time defendants asked Edward to release the mortgage securing the



defense is also inappropriate at this time because the defense is available to defendants as long as the
validity of the Note is in question. For these reasons, plaintiffs’ motions to dismiss defendants’
counterclaim and affirmative defense of fraudulent misrepresentation are denicd.
PROMISSORY ESTOPPEL

With respect to plaintiffs’ motion to dismiss defendants’ promissory estoppel affirmative
defense, defendants allege that “[iJn reliance upon the gift from his parents, [defendants] abandoned
the application process for securing conventional financing {for the construction of [their] primary
residence” and “completed the construction of their primary residence at an accelerated rate and
incorporated numerous substantial improvements to their primary residence which would have not
been completed but for the gift.” Defendants also assert that if it were not for the alleged gift, they
would have secured conventional financing, and the implication of their counterclaims and
affirmative defenses is that had they known the terms of the Note would be enforced, they would
have chosen conventional financing over a loan from plaintiffs. Promissory estoppel consists of four
elements: “(1) that the defendant made a promise unambiguous in its terms, (2) that plaintiff relied
on the promise, (3) that this reliance was expected and foreseeable from the defendant’s position,
and (4) that the plaintiff's reliance on the promise was detrimental.” Gerson Electric Construction
Co. v. Honeywell, Inc., 117 Ml. App. 3d 309, 312 (1983). Clearly, the parties dispute whether
plaintiffs made an unambiguous promise that the money was a gift, but I must accept defendants’
version of the facts for the purpose of this motion, Plaintiffs again rely on the argument that the
existence of the Note and Mortgage preclude this affirmative defense, but this argument once more
misses the point. The facts alleged by defendants indicate that despite the existence of the Note and
Mortgage, an agreement may not have actually existed because there was no meeting of the minds.

Thus, promissory estoppel is available to defendants at this time. If defendants’ version of the story



Dismissal of a complaint is appropriate when “it appears beyond doubt that the plaintiff can prove no
set of facts in support of his claim which would entitle him to relicf.” Conley v. Gibson, 355 US.
41, 45-46 (1957). Plaintiffs have not pled facts sufficient to show the existence of a fiduciary
relationship and therefore, I am dismissing Count IV of their Amended Complaint.

Because Count IV was not changed in the Amended Complaint, I will not allow plaintiffs to
file an amended pleading with respect to this claim in accordance with my Rule 16 order in open
court, which was that if plaintiffs chose to stand on any of the claims alleged in the original
Complaint that were subject to a motion to dismiss, they would not be granted leave to file an
amended pleading on those claims thereafter.

FRAUDULENT MISREPRESENTION

Plaintiffs have moved to dismiss defendants’ counterclaim and affirmative defense of
fraudulent misrepresentation. Plaintiffs argue that dismissal of the counterclaim and affirmative
defense is proper because defendants have failed to plead any damages. Defendants assert that they
have pled the following damages: (1) forfeiture of conventional financing; (2) making substantial
improvements and upgrades to their home; and (3) litigation fees and expenses. Plaintiffs arguc that
defendants’ assertion that they have been damaged by receipt of money that has not been repaid at all
is preposterous and that litigation fees and expenses are not recoverable on this claim. Defendants
tely on Michelin Tire Corp. v. Sullivan for the proposition that litigation fees and expenses are
recoverable when those losses are caused by the respondent’s wrongful conduct. 1986 WL 5666
(N.D. Ill. 1986), In Michelin Tire, the court held that litigation fees and expenses were sufficient
damages to sustain the defendant's counterclaim of fraud. Although plaintiffs argue that Michelin

Tire is not applicable, the cases ate similar in that the allegation of fraud is not directed towards the

attempt to enforce the agreement. Rather, like Michelin Tire, the fraud alleged by defendants lies in



note which transferred the moncy at issue, Edward and his wife were caring for a gravcly ill child
and were consequently emotionally and mentally distressed; (3) Edward’s dealings with John and his
wife were affected by John’s return to the family afler a period of estrangement; and (4) other
unidentified circumstances. This claim for breach of fiduciary duty must comply with the “pleading
with particularity requirement” of Fed. R. Civ. Pro. 9(b) (“Rule 9(b)”), so the question is whether the
facts alleged by plaintiffs satisfy Rule 9(b). See Robison v, Caster, 356 F.2d 924, 925 (7" Cir. 1966)
(holding that if a breach of fiduciary duty claim is essentially a “scheme to defraud,” Rule 9(b) “must
be followed”).

Accepting the facts alleged by plaintiffs as true, which I must do for the purpose of this
motion, it does not appear that the facts alleged by plaintiffs show that a fiduciary relationship
existed between Edward and John. Kinship alone does not give rise to a fiduciary relationship, and
Edward’s and his wife’s mental and emotional distress and John’s prior estrangement from the
family are not sufficient to show that John was in a position of superiority and influence over his
father. Evidence that one family member transacted business or handled the financial affairs for
another family member or that the allegedly dominated family member was seriously ill or displayed
little to no interest in his personal affairs has been found to show that a fiduciary relationship existed.
See Kester v. Crilly, 405 Ill. 425, 433 (1950); Johnson y, Lane, 369 Ill. 135, 147-48 (1938). In
contrast, evidence that a father, old in age and experiencing physical limitations, gave authority to
his son to withdraw funds from his savings account or that a father openly displayed a strong
favoritism to one son or that a father placed his son in charge of his business after the son insisted
that the father stop working due to poor health has been found insufficient to establish a fiduciary

telationship. See In the Matter of the Estate of Kieras, 521 N.E.2d 263, 268 (Ill. App. 1988); Stewart

v. Sunagel, 394 Il, 209, 215 (1946); Kriegel v. Miedema, 155 N.E.2d 815, 242 (Ill. App. 1959).



that defendants were expected to repay at some point, and both parties agreed and understood that
the Note would be enforced al the time of its signing, then why would defendants nccd to manipulate
or trick plaintiffs into making a loan for which repayment has been promised? Defendants’ alleged
manipulating and trickery would make more sense if the money was, in one way or another, a gift.
Finally, plaintiffs argue that defendants cannot submit evidence supporting their fraudulent
misrepresentation counterclaim because according to the doctrine of merger and the parol evidence
tule, “a written agreement that is complete on its face supercedes all prior agreements on the same
subject matter and bars the introduction of evidence concerning any prior term or agreement on that
subject matter.” Magnus v. Lutheran General Health Care System, 235 Il. App. 3d 173, 181 (1992).
Similarly, plaintiffs argue that “[d]efendants are barred from asserting defenses of promissory
estoppel and fraudulent misrepresentation because a writen contract governing the transfer of funds
exists.” However, if I take defendants’ allegations as true, which I must for the purpose of plaintiffs’
motion to dismiss, it would appear that there was no meeting of the minds, which is required for a
valid contract. See, e.g., Comprehensive Merchandising Catalogs, Inc. v. Madison Sales Corp., 521
F.2d 1210, 1214 (7" Cir. 1975). Plaintiffs press strongly on the point that defendants read,
understood, and signed the Note and Mortgage, which were clear and unambiguous in their terms,
but this argument does not address the issue raised by defendants: the inducement to sign these
documents. In alleging fraudulent misrepresentation, defendants are not arguing that the oral
promise supplants the Note and Mortgage; rather, defendants are arguing that it was this oral promise
that gave birth to these documents—without the promise, the Note and Mortgage would have never
come into being. Consequently, dismissal of defendants’ fraudulent misrepresentation counterclaim
on the basis of the doctrine of merger and parol evidence rule is improper at this time, given that the

existence of a valid contract has not yet been established. Dismissal of defendants’ affirmative



Minute Order Rorm (06/97)

United States District Court, Northern District of Illinois

Name ot Assigned Jud} "9 Sitting Ju
oF Magistrate Judge James B. Zagel “nan Anigned Judge
CASE NUMBER 02 C1578 DATE 10/3/2002
CASE EDWARD T. LIPKE, ET AL vs. JOHN F. LIPKE, ET AL
TITLE

Un the following box (a) indicate the party filing the motion, .g.,.pluintift, defendant, 3rd party plaintiff, and (b) state bnefly the nature

f th i 5
MOTION: of the motion being presented.]

DOCKET ENTRY:

(1) Q Filed motion of [ use listing in “Motion” box above.]

(2) oO Brief in support of motion due

Q) qa Answer brief to motion due___-_ Reply to answer bricf due

(4) oO Ruling/Hearingon_____set for___at.

(5) Oo Status hearing[held/continued to] (set for/re-set for] on set for saat

() O Pretrial conference[held/continued to] [set for/re-set for]on__setfor__— at

(7) C] Trial[set for/re-sct for] on___at

(8) o [BenchJury trial] [Mearing) held/continuedto_____at

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFrcP4(m) ClLocal Rule 41.1 OFRCP41(a\1) © FROP41(a)(2).

uo [Other docket entry] Motion (8-1) to dismiss is granted/denied in part. Count TV of the

amended complaint is dismissed. Motion (13-1) and (14-1) to dismiss counterclaims and affi
defenses is denied.

native

(11) @ [For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document

Number

No notices required. es of ai

Notices mailed by judge’s staff: ( CT 04 2002 °

‘Notified counsel by telephune. docketed

| Duckering to mail notives — ry
Mail AO 430 form

shah de itis

Copy to judge/magistrate judge. LUA beet gq
courtroom { = dure maiied notice
DW deputy’s 7
initials
Dape/time received in;
ential Cletk's Office“ - tring deputy ti



CONCLUSION
For the reasons stated above, defendants’ motion to dismiss Count IV of plaintiffs’ First
Amended Complaint is granted. Plaintiffs’ motions to dismiss defendants’ counterclaims and

affirmative defenses are denied.

Q\ Boal

Jamés B. Zagel __) ?
‘ited States District Judge

pate:_2Ok- 2002

M1



is true, then not only is there an invalid contract, but there is also a justified reliance that resulted in
detriment to defendants. Lf plaintiffs did represent to defendants that they would give defendants the
money needed for their home improvements, defendants understandably forewent undertaking a loan
and began making the improvements. After reviewing the record before me, I find that defendants
have pled sufficient facts to defeat plaintiffs’ motion to dismiss the promissory estoppel affirmative
defense.
DECLARATORY JUDGMENT

Plaintiffs also seek 10 dismiss defendants’ counterclaim for declaratory judgment on the
grounds that it “fails to state a cause of action, fails to seek affirmative relief from plaintiffs, and
merely asserts a defense to Plaintiffs’ claims.” However, a declaratory judgment “may be granted
“whether or not further relief is or could be prayed,’” and absent the provision of special statutory
proceedings, “[t]he existence or non-existence of any right, duty, power, liability, privilege,
disability, or immunity or of any fact upon which such legal relations depend, or of a status, may be
declared.” Fed. R. Civ. Pro. 57 advisory committee’s note. Thus, dismissal of defendants’
counterclaim for declaratory judgment is not appropriate on the basis of plaintiffs’ argument. At this
time, | am only considering motions to dismiss and cannot rule on the merits of either side’s
arguments. Thus, the issue here is whether defendants have pled facts sufficient to support their
counterclaim for declaratory judgment. Defendants seek a judgment declaring the $135,000 to be a
gift and that consequently, they are under no obligations to plaintiffs. The facts as alleged by
defendants indicate that regardless of the Note, the intent behind the transfer of the $135,000 may
have been donative. Thus, I tind that defendants have adequately pled their declaratory judgment

counterclaim, and deny plaintiffs’ motion to dismiss it.

10



the inducement to enter into the agreement. In other words, defendants argue that but for plaintiffs”
allegedly fraudulent conduct, defendants would never have signed the Note in the first place. I find
defendants’ argument that the litigation fees and expenses are the direct result of plaintiffs’ alleged
wrongdoing compelling, and this exception to the American Rule barring recovery of attorneys fees
in the absence of specific contractual or statutory authority is supported by Hlinois case law. See
Sorenson v, Fio Rito, 90 Ill. App.3d 368, 372-374 (1980).

Additionally, plaintiffs’ argument that defendants cannot possibly plead damages because
they have come into possession of a large sum of money that they have not repaid is unconvincing.
It is defendants’ contention that they would have never accepted the $135,000 had they known that
the Note would actually be enforced. Plaintiffs strongly argue that “defendants are prevented as a
matter of law from claiming that they were defrauded as to the terms of the Note” because
defendants signed the Note and Mortgage, and the terms of thesc documents were clear, However,
this argument misses the point of defendants’ case, for defendants do not contest that they signed the
Note, nor that they saw and understood its plain language. The crux of defendants’ argument is that
they were explicitly told and promised that the contents of the Note were essentially meaningless,
that no matter what the Note or Mortgage said, these documents were mere formalities allowing
plaintiffs to escape adverse tax consequences. This argument is not as frivolous as plaintiffs
vehemently assert. If plaintiffs had made a gift of the money in accordance with Illinois law, then
the $135,000, being in excess of $20,000, would be taxed quite heavily. Alternatively, if plaintiffs
made a loan (actual intentions put aside) that ended up unpaid, the $135,000 would be considered a
loss, as opposed to a gift. Plaintiffs’ own argument that defendants manipulated and tricked

plaintiffs into giving them the money by taking advantage of plaintiffs’ emotional distress over their

sick child actually works against plaintiffs more than for them. If the $135,000 was indeed a loan



June of 2000. At this time, she told John that she had recently learned of his new home construction
and that since winning the lottery, she and Edward had given substantial financial assistance to their
other children. Judith expressed a desire to assist John and Lori in the construction and improvement
of their new home. When John told his mother that he was in the process of securing conventional
financing from a bank for $150,000, she told her son that she and Edward would gift the money to
him. Judith also told John that since she and Edward had paid considerable taxes the prior year, she
wanted to make the gift with no adverse tax consequences and would consult her accountant, Andy
Midlock, to find the best way to transfer the money. A few days later, Judith called John to tell him
that she and Edward would give him and Lori a substantial sum of money for the construction and
improvement of their new home and instructed John to call Mr. Midlock to work out the proper
procedure for completing the gift with no adverse tax consequences. The following day, John called
Mr. Midlock, who told John that he was working on the arrangements for the gift so that Judith and
Edward would suffer no adverse tax consequences, John told Mr. Midlock that he was cancelling his
loan application, and Mr. Midlock told John that he would contact him as soon as the arrangements
were completed. In early to mid August of 2000, Mr. Midlock contacted John and informed him that
the arrangements were finished, and on August 29, 2000, John and Lori, Edward and Judith, and Mr.
Midlock met in the office of John and Lori’s attorney. At this time, it was explained to John and
Lori that the gift would have to take the form of a Note secured by a Mortgage in order for Edward
and Judith to escape adverse tax consequences. As mentioned previously, neither party disputes the
contents of the Note. However, defendants allege that Edward and Judith told them that the “total
gift amount would be excused over a period of ten (10) years,” and it was based on these

representations that defendants decided to sign the Note and Mortgage. Defendants believe that

Rdward and Judith “intended to rekindle and strengthen the familial bond with their son [and his



BACKGROUND

Defendant John F. Lipke is the son of plaintiff Edward I. Lipke. In 1981, John married Lori,
after which John became estranged from his parents and ceased to communicate regularly with them.
In April 1999, Edward and his wife Judith won a substantial amount of money in the Illinois lottery.
Looking at the allegations of both partics in the various pleadings, it does not appear that these facts
are contested. In contrast, what occurred subsequent to Edward and Judith’s good fortune is very
much in dispute.

Plaintiffs’ story is as follows: John contacted his parents and asked for a loan to help him in
his contracting business and/or improvement of his residence in Clarendon Hills, Illinois. Upon
John’s reassurance that he and his wife would repay the loan, Edward and Judith agreed to loan John
and Lori the money, to be funded by the Edward T. Lipke Trust. On August 29, 2000, John and Lori
signed a Note for $135,000. This Note provided for nine annual payments of $20,000 to be paid on
August 29" of each year, beginning August 29, 2001, and ending August 29, 2009, and a final
payment of $505.00 due on August 29, 2010. The Note was secured by a Mortgage, which was
signed by John and Lori on that same day. Edward specifically required this so that he could recover
the money if necessary. In August, 2001, John asked his father to release the Mortgage so that he
could borrow an additional $60,000 from a bank, and he promised his father that he and Lori would
execute a second mortgage to secure the Note. Edward released the Mortgage in reliance on his
son’s promises. Since then, John and Lori have not entered into the second mortgage, nor have they
made the first payment of $20,000 duc under the Note.

Defendants do not contest that they signed the Note and Mortgage, nor do they dispute the
terms of the Note (i.c., amount, payment schedule, etc,), However, their version of the story is very

different. According to defendants, it was Judith Lipke who initiated contact with John and Lori in



.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

EDWARD T. LIPKE, as Trustee of the
EDWARD 'T. LIPKE TRUST, and EDWARD
T. LIPKE, individually,

Plaintifts, No.o2c15s78 | "OR METED
Judge James B. Zagel .
v. an? a 4 2002

JOHN ¥, LIPKE AND LORI LIPKE,

Defendants.

MEMORANDUM OPINION AND ORDER

This family dispute concerns a sum of money that a father transferred to his son and
daughter-in-law. The parties dispute the nature of the transfer, the former believing the moncy to be
a loan that remains unpaid, the latter believing the money to be a gif. The money was transferred by
way of a Note for $135,000, which was secured by a Mortgage, both signed by defendants. Since
then, no payments on the money have been made and plaintiffs now seek to enforce the Note by
filing a five count complaint for: (1) breach of note; (2) specific performance of an oral contract; (3)
fraud in the inducement and rescission; (4) breach of fiduciary duty; and (5) fraud. Defendants have
filed counterclaims for fraudulent misrepresentation and declaratory judgment and affirmative
defenses of promissory estoppel and fraudulent misrepresentation. Defendants have also filed a
motion to dismiss plaintifts’ original Complaint. Subsequently, plaintiffs filed an Amended
Complaint which cured most of the defects raised by defendants’ motion, and the only remaining
issue is Count IV, breach of fiduciary duty. Plaintiffs have filed motions to dismiss defendants’

counterclaims and affirmative defenses, which I will also address in this opinion.