Marketing must allege that: (1) plaintiff made false representations of material fact; (2) plaintiff
knew or believed the representation was false at the time of its making; @) plaintiff made the
misrepresentation for the purpose of inducing Chicago Marketing to act; (4) Chicago Marketing
did so act; (5) Chicago Marketing had a reasonable belief in and relied on the misrepresentation
to its detriment; (6) the misrepresentation damaged Chicago Marketing. Regensburger v. China
Adoption Consultants, Ltd., 138 F.3d 1201, 1207 (7" Cir. 1998).

Plaintiff generally concedes that Chicago Marketing has alleged each of these elements.”
Instead, plaintiff argues that the counterclaim fails to state a claim because the allegations do not
constitute actionable misrepresentations of past or existing fact, but rather are representations
concerning future contractual performance which cannot give rise to a fraud claim. See, e.g.,
McDonald v. McDonald, 408 Ill. 388, 394 (1951). This is incorrect. Chicago Marketing alleges
that plaintiff told it that Nazha had reviewed and approved the documents and had agreed to sign
them and become personally liable. Those are statements of existing or past fact. Chicago
Marketing alleges that absent those misrepresentations, it would not have signed the documents
without reviewing them first. That is sufficient to state a claim for fraudulent inducement. True,
Chicago Marketing is unhappy with Nazha for failing to do what he had told Sullivan he would
do, but it is plaintiffs misrepresentation that Nazha had approved the documents that allegedly

caused Chicago Marketing to execute the documents without reviewing them first.

2Pjaintiff does state in a footnote that Chicago Marketing has not alleged that plaintiff
made the alleged misrepresentation for the purpose of inducing Chicago Marketing to act. This
statement is incorrect. Paragraph 16 of the counterclaim specifically alleges that the
misrepresentations were made to induce Sullivan to sign the Floor Plan Financing documents.

4



CONCLUSION
For the reasons set forth above, plaintiff's motion to dismiss North Chicago Marketing,

Inc.’s counterclaim is denied. Plaintiff's motion to dismiss Richard Sullivan’s counterclaim is

icngs

Robert W. Gettleman
United States District Judge

granted.

ENTER: February 7, 2003



(a) the Floor Plan Financing documents were merely a corporate promissory note;

(b) —_ Nazha had already approved of the Floor Plan Financing documents and would be
signing the Floor Plan Financing documents at Chrysler’s office later that same
day;

(c) Nazha would be personally Jiable if anything went wrong; and

(d) the only reason Chrysler was having Sullivan sign the Floor Plan Financing

documents on behalf of Chicago Marketing was because Nazha was not a
corporate officer and therefore could not technically sign on behalf of Chicago
Marketing.

Based on these representations, Sullivan signed the documents without reading them. He
signed a “Security Agreement and Master Credit Agreement” (the Floor Plan Financing
Agreement) and a promissory note on behalf of and as president of Chicago Marketing. He also
signed a “Continuing Guaranty” personally. Chicago Marketing began business and began
making payments to plaintiff.

On or about May 20, 2002, Sullivan called Zandstra to discuss certain new procedures
plaintiff had implemented regarding both Consumer Financing and Floor Plan Financing.
Zandstra told Sullivan that the Chicago Marketing Floor Plan Financing had been cancelled and
that notice had been sent to Nazha. According to Zandstra, the financing had been cancelled
because Nazha had failed to sign the Floor Plan Financing documents. After several attempts,
Sullivan contacted Nazha on May 30, 2002, and was told that Nazha had not signed the
documents. On June 7, 2002, Sullivan asked Nazha to sign the documents but Nazha refused.

DISCUSSION

Chicago Marketing alleges that it was fraudulently induced to enter into the Floor Plan

Financing Agreement and Promissory Note. To state a claim for fraudulent inducement, Chicago


Plaintiff also argues that the fraudulent inducement claim fails because Chicago
Marketing had the opportunity to review the documents and discover the alleged fraud. “[A]s
long as the complaining party could have discovered the fraud by reading the contract and had
the opportunity to do so, Illinois courts have refused the extend the doctrine of fraudulent

inducement to invalidate contracts.” Cozzi Iron & Metal, Inc. v. U.S. Office Equipment, Inc,

250 F.3d 570, 573 (7" Cir. 2001). The key is whether the fraud could be discovered simply by
reading the documents because “reliance on preconttactual fraud statements is precluded as
unreasonable only where the contract flatly contradicts them.” Chicago Printing Co. v.
Heidelberg USA, Inc., 2001 WL 1134862 at *5 (N.D. Il. 2001). In the instant case, nothing in
the contract documents contradicts, flatly or otherwise, the alleged misrepresentation that Nazha
had already approved the documents and had agreed to become personally liable. It is true that
there is no space on the corporate documents for Nazha to sign, but he was not a corporate
officer. It is also true that there was no “Continuing guaranty” for Nazha among the papers given
to Sullivan, but it is entirely possible that Nazha had been given and approved a guaranty form
with his name on it. Because such a guaranty would be a personal obligation rather than a
corporate obligation, there would be no need for it to be given to Sullivan. Accordingly, the
court concludes that the contract documents do not automatically negate the element of
reasonable reliance. Because Chicago Marketing’s counterclaim alleges actionable
misrepresentations that would not have been revealed by reading the contract, plaintiff's motion
to dismiss Chicago Marketing’s counterclaim is denied,

Sullivan’s counterclaim alleges fraud in the execution of the “Continuing Guaranty.”

Fraud in the inducement occurs when (as alleged by Chicago Marketing) “fraud induces a party


Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge Robert W. Gettleman than Assigned Judge
CASE NUMBER 02 C 5633 DATE Feb. 7, 2003
CASE DaimlerChrysler v North Chicago Marketing, Inc., et al
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
(e9) im) Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) im Answer brief to motion due. . Reply to answer brief due__
(4) oO Ruling/Hearing on set for at
6 Oa Status hearing
(6) od Pretrial conference[held/continued to] [set for/re-set for] on set for at .
(7) Oo Trial[set for/re-set for] on at
(8) i) Jury trial
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) O General Rule21 OFRCP41(a)(i) OO FRCP41(a)(2).

ao) «=o [Other docket entry]

to dismiss North Chicago Marketing Inc.’s counterclaim

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

Memorandum opinion and order entered. Accordingly, plaintiff's motion
is denied.
Plaintiff's motion to dismiss Richard Sullivan’s counterclaim is granted.

No notices required, advised in open court.

No notices required, number of notices

X_ | Notices mailed by judge's staff.

i
Notified counsel by telephone. i

i 2003

Docketing to mail notices.

Mail AO 450 form,

Copy to judge/magistrate judge.

yunod : 3

date mailed notice
courtroom

deputy's
initials

Gps potty yiteu

Date/time received in
~ central Clerk’s Office

fis

ailing deputy initials

oT oe



to assent to a commitment that the party understands, but to which the party would not otherwise
have assented; the promisor knows what it is signing but its assent is induced by fraud.” In
contrast, fraud in the execution “entails deceiving a party to an agreement as to the very nature of
the instrument it signs so that the party ‘actually does not know what he is signing, or does not
intend to enter a contract at all.’” Laborers’ Pension Fund v. A&C Environmental, Inc., 301 F.3d
768, 779 (7" Cir. 2002) (citations omitted). Sullivan alleges that plaintiff told him that all of the
documents he was signing were corporate documents creating corporate obligations, and that he
had no intent to and did not know that he was binding himself personally.

Unlike Chicago Marketing’s claim, Sullivan’s claim is “flatly contradicted” by the
contract documents. The Floor Plan Financing Agreement and Promissory Note both indicate
that they are entered into between plaintiff and Chicago Marketing, both required the president of
Chicago Marketing to sign, and Sullivan did sign both as “Pres.” In contrast, the continuing
guarantee indicates that it is entered into personally. Sullivan’s name, social security number and
address are typed in as the “undersigned” and he then printed his name, signed his name in
cursive and wrote in his social security number. Importantly, after signing his name in cursive,
he did not add “Pres” as he did on the other two documents. Because the document flatly
contradicts the alleged misrepresentation, Sullivan cannot justifiable rely on that

misrepresentation. Cozzi, 250 F.3d at 573. Therefore, he fails to state a claim for fraud in the

execution.>

3Sullivan’s alternate claim for negligent misrepresentation also requires reasonable
reliance on the alleged misrepresentation and thus fails for the same reason. Quinn v. McGraw-
Hill Companies, Inc., 168 F.3d 331, 335 (7" Cir. 1998).

6


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

DAIMLERCHRYSLER SERVICES NORTH
AMERICA, LLC,

Plaintiff/Counter Defendant,
No. 02 C5633
v. ,
Judge Robert W. Gettleman
NORTH CHICAGO MARKETING, INC., and
RICHARD J. SULLIVAN,

RICHARD J. SULLIVAN,
Third Party Plaintiff,

v.

)

)

)

)

)

)

)

)

}

Defendants/Counter Plaintiffs. ) DOSKETED

)

)

)

)

)

)

}

WILLIAM CALLAS NAZHA, )
)

)

Third Party Defendant.

MEMORANDUM OPINION AND ORDER

Plaintiff Daimlerchrysler Services North America LLC has sued defendants North
Chicago Marketing, Inc. (“Chicago Marketing”) and Richard J. Sullivan, alleging breach of a
security agreement (“Floor Plan Financing Agreement”) and a promissory note by Chicago
Marketing, and breach of a personal guaranty by Sullivan. Chicago Marketing has
counterclaimed, alleging fraud in the inducement and, in the alternative, negligent
misrepresentation, Sullivan has also counterclaimed, alleging fraud in the execution and

negligent misrepresentation. Plaintiff has moved to dismiss both counterclaims for failure to


state a claim upon which relief may be granted. For the reasons set forth below, the motion is
denied as to Chicago Marketing and granted as to Sullivan.
FACTS

According to the counterclaims,' until 1999 Sullivan was an automobile salesman. In
January 1999, William Nazha, who owned and operated a number of motor vehicle dealerships
that sold new vehicles including Chryslers, approached Sullivan and proposed that they enter into
a joint venture to establish and operate a used vehicle dealership. Pursuant to that agreement,
they formed and incorporated Chicago Marketing. Nazha was to obtain financing for the joint
venture, use his connections with Chrysler to procure and maintain the financing necessary for
Chicago Marketing to purchase used vehicles for resale to the public (“Floor Plan Financing”),
and to provide financing to consumers who did not otherwise qualify for financing (“Consumer
Financing”). Sullivan was to organize and run the day-to-day operations of the dealership.
Sullivan became President of Chicago Marketing. Nazha was never made a corporate officer.

After Chicago Marketing was incorporated, Nazha told Sullivan that he had obtained
Floor Plan Financing. He also told Sullivan that it was important for Chicago Marketing to be
successful because Nazha would be personally liable for the Floor Plan Financing.

On April 7, 2000, Brian Zandstra, a representative of plaintiff, went to Chicago
Marketing’s office and instructed Sullivan to sign various documents relating to the Floor Plan
Financing. At that time, for the purpose of inducing Sullivan to sign the documents, Zandstra

made the following misrepresentations:

'For purposes of a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court
accepts as true the well plead factual allegations of the counterclaims. Travel All Over the
World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1428 (7" Cir. 1996).

2