                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




           Rasgaitis v. Waterstone Financial Group, Inc., 2013 IL App (2d) 111112




Appellate Court            JEANETTE RASGAITIS and ROBERT RASGAITIS, Plaintiffs-
Caption                    Appellants, v. WATERSTONE FINANCIAL GROUP, INC., RONALD
                           G. FARA, and VICKI M. DIGGLES, Defendants-Appellees (Net
                           National Lending, d/b/a Mortgage Pros, Ltd., Defendant).



District & No.             Second District
                           Docket No. 2-11-1112


Filed                      February 20, 2013


Held                       In an action arising from defendants’ solicitation of plaintiffs to mortgage
(Note: This syllabus       their residence and invest the equity in life insurance policies and
constitutes no part of     annuities, the count alleging that the firm where defendants worked was
the opinion of the court   guilty of negligence and negligent supervision was barred under the
but has been prepared      Moorman doctrine, which precludes the recovery of solely economic
by the Reporter of         losses under a negligence theory; however, the dismissal of the claims
Decisions for the          against defendants on the ground that they were barred by the statute of
convenience of the         limitations was reversed and the cause was remanded, since the discovery
reader.)
                           rule tolled the statute of limitations.


Decision Under             Appeal from the Circuit Court of Du Page County, No. 10-L-471; the
Review                     Hon. John T. Elsner, Judge, presiding.



Judgment                   Affirmed in part and reversed in part; cause remanded.
Counsel on                 John S. Burke and Andrea R. Zenker, both of Higgins & Burke, P.C., of
Appeal                     St. Charles, for appellants.

                           Peter E. Cooper and Mitchell B. Goldberg, both of Lawrence, Kamin,
                           Saunders & Uhlenhop, LLC, of Chicago, for appellee Waterstone
                           Financial Group, Inc.

                           Christian T. Kemnitz, Aharon S. Kaye, and Rachel Freyman, all of Katten
                           Muchin Rosenman LLP, of Chicago, for appellee Ronald G. Fara.

                           Stephen A. Rehfeldt, of Mulherin, Rehfeldt & Varchetto, P.C., of
                           Wheaton, for appellee Vicki M. Diggles.


Panel                      JUSTICE SCHOSTOK delivered the judgment of the court, with opinion.
                           Justices Hutchinson and Zenoff concurred in the judgment and opinion.




                                              OPINION

¶1          The plaintiffs, Jeanette and Robert Rasgaitis, appeal from the trial court’s dismissal of
        their second amended complaint. The trial court dismissed the complaint on the basis that
        it was barred by the statute of limitations. The plaintiffs’ complaint alleged claims against
        the defendants, Waterstone Financial Group, Inc. (Waterstone), Ronald Fara, and Vicki
        Diggles, for alleged fraud in soliciting the plaintiffs to mortgage their home and invest the
        equity in certain life insurance policies and annuities. We affirm in part, reverse in part, and
        remand for additional proceedings.

¶2                                        I. BACKGROUND
¶3          The plaintiffs filed their original complaint on April 12, 2010, and their first amended
        complaint on September 8, 2010. The defendants filed motions to dismiss the plaintiffs’
        complaint pursuant to section 2-619.1 of the Code of Civil Procedure (Code) (735 ILCS 5/2-
        619.1 (West 2008)). On March 7, 2011, following argument on the motions, the trial court
        dismissed the plaintiffs’ first amended complaint without prejudice, with leave to refile.
¶4          The plaintiffs’ second amended complaint was filed on April 8, 2011. The complaint
        alleged as follows. The plaintiffs are married. Waterstone is an investment advisory firm and
        an independent brokerage firm. Waterstone is licensed to provide financial services and also
        sells products including securities, annuities, and life insurance policies. Waterstone is a
        member of the Financial Industry Regulatory Authority (FINRA).

                                                  -2-
¶5       The complaint alleged that, during the relevant time frame, Fara was registered with the
     State of Illinois as an agent of Waterstone to sell financial products and offer investment
     advice. Fara operated a registered branch office of Waterstone in Oak Brook. The office was
     identified as a Waterstone branch office in the building directory on the first floor and on
     signs located in the office. Waterstone allowed Fara to provide business cards “identifying
     Fara as a registered representative with and offering the sale of securities through Defendant
     Waterstone.” Pursuant to FINRA rules, Waterstone was required to supervise Fara. Fara was
     also registered as an investment advisor for “Fara and Diggles Wealth Management LLC.”
     Fara represented to the general public that this business entity was also affiliated with
     Waterstone. Fara used the same Waterstone office and telephone number when operating his
     outside business entities.
¶6       According to the complaint, Diggles was held out to the public as a partner of Fara and
     an actual or apparent agent of Waterstone. Diggles worked out of Fara’s Waterstone office
     performing duties for the benefit of Waterstone at the direction of Fara. Waterstone allowed
     Fara to hold out Diggles as a financial planner in the business he operated out of the
     Waterstone office.
¶7       In March 2004, December 2004, August 2005, and May 2006, FINRA warned its
     members, including Waterstone and Fara, that 100% mortgages were not suitable and that
     investors were not aware of the significant risks of 100% mortgages. Despite these warnings,
     Waterstone by and through its agents Fara and Diggles intentionally and fraudulently (1)
     advised the plaintiffs to mortgage near all of the equity in their home and invest in “an
     investment plan” proposed by Fara; (2) reassured the plaintiffs that the investment plan was
     appropriate for their needs; (3) reassured the plaintiffs that the investment plan was “safe and
     secure”; and (4) advised the plaintiffs to invest in equity-indexed annuities without any
     attempt to explain the associated fees, expenses, and surrender charges.
¶8       The complaint alleged the following specific facts. On or about September 19, 2006, the
     plaintiffs received a written solicitation to attend a seminar entitled “Mortgage mistakes and
     Misconceptions: how to save a fortune on your mortgage.” The written solicitation stated that
     Fara would “educate homeowners on the many mistakes they could be making on their home
     mortgage.” Waterstone either did review and approve or should have reviewed and approved
     the content of the seminar. The plaintiffs attended the seminar because they wanted to pay
     off the balance of their mortgage prior to retirement. At the October 3, 2006, seminar Fara
     indicated that his investment plan had been successful for other clients. On October 15, 2006,
     the plaintiffs met with Fara and Diggles at Fara’s Waterstone office to discuss the investment
     plan, which involved mortgaging their home and investing the proceeds. Fara again indicated
     that his plan had been successful with other clients, who earned generous returns.
¶9       On October 20, 2006, the plaintiffs met with Fara and Diggles for a second time at the
     Waterstone office. At that meeting, the plaintiffs provided the defendants with information
     concerning their financial status. They informed Fara that the balance on their mortgage was
     $66,000 and that they had about $250,000 in equity in their home. They told Fara that their
     primary financial objectives were to pay off their mortgage and earn income for retirement.
     They also provided information about their Charles Schwab individual retirement accounts
     (IRAs) that were invested in Standard & Poor (S&P) indexed mutual funds. Fara informed

                                               -3-
       the plaintiffs that there were benefits to mortgaging their home and investing the equity. Fara
       represented that (1) the funds the plaintiffs invested through Fara would be 100% safe and
       guaranteed; (2) his investment plan was a proven method to increase their net worth; (3) his
       plan would provide more than enough funds to pay off their mortgage and provide retirement
       income; and (4) the plaintiffs’ funds would always be available to pay off their proposed
       second mortgage at any time.
¶ 10        On October 29, 2006, the plaintiffs met with Fara and Diggles for a third time at the
       Waterstone office. At that meeting, Fara presented the plaintiffs with a personalized binder
       that promised guaranteed benefits after implementation of Fara’s investment plan. Fara
       represented that his investment plan, involving their home and both of their IRAs, would
       result in hundreds of thousands of dollars in benefits. Specifically, Fara told the plaintiffs that
       his investment plan would generate returns to pay off their mortgage; provide them with
       retirement income; be safe and appropriate, offering high returns without risk of loss; and
       result in tax benefits of 31%. Fara also told them that they could remove their funds from his
       investment plan at any time. Fara represented that his investment plan would provide
       guaranteed safe returns of $96,376 above the costs of the mortgage.
¶ 11        The next day, the plaintiffs again met with Fara and Diggles at the Waterstone office. The
       purpose was to implement the investment plan. The investment plan was to mortgage the
       plaintiffs’ home to nearly 100% of its value and use the equity to purchase a five-year term
       annuity that would fund two life insurance policies. The plaintiffs signed various papers at
       this meeting but alleged that Fara and Diggles did not explain or show all of the various
       papers to them but, rather, just indicated where they should sign. Fara and Diggles again
       represented to the plaintiffs that their funds could be removed from the investment plan at
       any time and be used to pay off the proposed $280,000 mortgage. Fara and Diggles stated
       that they would provide a breakdown describing how the assets were invested in the plan.
       The plaintiffs signed applications for the life insurance policies. Diggles sold the mutual
       funds in the plaintiffs’ respective Charles Schwab IRAs. The plaintiffs also signed
       application forms for “Midland individual flexible premium equity indexed annuities.”
¶ 12        On November 17, 2006, the plaintiffs obtained a 30-year adjustable rate mortgage on
       their home in Wheaton for $280,000. The plaintiffs were issued funds of $213,115.56. The
       defendants failed to tell the plaintiffs that the loan they were taking out was a subprime
       mortgage with interest rates above the market rate. The mortgage included enhanced fees and
       incentive payments to Fara for initiating the mortgage.
¶ 13        On or about November 29, 2006, the plaintiffs signed the application for a “Great
       American Single-Premium Immediate Annuity,” contract number 06007934. The single
       premium payment was $213,125.56, which represented the full amount of the proceeds from
       the new mortgage on their home. The Great American annuity was to give the plaintiffs five
       annual payments of $43,942.07, with the first payment to be issued on January 1, 2007. The
       first payment was used to pay the initial premium payments on the plaintiffs’ life insurance
       policies. The initial premium payment on Jeanette’s Midland universal life insurance policy,
       number 1502731746, with a policy date of January 1, 2007, was $23,050. The initial
       premium payment on Robert’s Midland universal life insurance policy, number 1502731736,
       with a policy date of January 4, 2007, was $20,892.

                                                  -4-
¶ 14       In January 2007, funds were received from the sale of the plaintiffs’ Charles Schwab IRA
       mutual funds. On January 9, 2007, a Midland individual flexible premium equity-indexed
       annuity, number 8500292198 in Jeanette’s name, was issued for an initial premium payment
       of $21,753.63. On January 30, 2007, Midland individual flexible premium equity-indexed
       annuity number 8500293080 in Robert’s name was issued for an initial premium payment
       of $19,707.03.
¶ 15       The plaintiffs further alleged that Fara’s investment plan was unsuitable and could never
       earn the returns promised. After the fifth premium payment for the Great American annuity,
       the annuity would be exhausted and the plaintiffs would be unable to afford the continuing
       annual premiums on their life insurance policies. The life insurance policies “would then
       lapse due to insufficient cash value to maintain coverage.” Fara failed to inform the plaintiffs
       that, short of one of them dying, “the guaranteed returns illustrated would never be
       attainable.” Fara failed to inform them that it would be impossible for them to fully recover
       their investments and pay off their $280,000 mortgage. The annuities funded with the
       plaintiffs’ IRAs caused the plaintiffs “to incur excessive annual fees and commissions.”
       Moreover, the two Midland annuities were no different from the plaintiffs’ Charles Schwab
       indexed mutual fund IRAs, and the Schwab IRAs contained no additional fees and
       commissions. The defendants failed to inform the plaintiffs that their life insurance policies
       and Midland annuities were subject to significant surrender charges.
¶ 16       The plaintiffs further alleged, on information and belief, that the defendants earned
       significant commissions on the sale of the life insurance policies and Midland annuities, and
       for the initiation of the mortgage. The defendants also solicited the plaintiffs to deposit
       $20,000 into Midland flexible premium equity-indexed annuity number 8500292024, which
       was issued on November 21, 2006. The defendants earned a commission in excess of $2,000
       on this annuity. The defendants failed to inform the plaintiffs that this annuity was subject
       to a surrender charge of up to 10% for the first seven years.
¶ 17       Finally, the plaintiffs alleged that the defendants continued to misrepresent that the
       investment plan was working. At a January 30, 2008, meeting at the Waterstone office, the
       plaintiffs inquired about the safety of the investment plan and Fara told them “that their
       money was safely invested in his plan and available to pay-off their mortgage in its entirety
       if Plaintiffs decided to do so.” Fara also stated that his investment plan was generating large
       returns that would be available in the following years. In August 2008 they called Diggles
       to express concern over their investments due to the volatility of the stock market. Diggles
       assured them that their money was safe and earning good returns without risk of loss.
¶ 18       In February 2009, the plaintiffs left multiple messages at the Waterstone office, but
       received no responses. They then sought out other professional investment advice. After
       receiving other advice, they learned that Fara’s investment plan could never earn the returns
       promised and that Fara’s and Diggles’ representations were false. “The only way the
       ‘investment plan’ could generate a positive return would be if one or both of the [p]laintiffs
       died causing the survivor to receive the insurance death benefits.” The sale of the Schwab
       IRA mutual funds to buy S&P 500-indexed annuities was not suitable. The promise of
       guaranteed returns was false.


                                                 -5-
¶ 19       The plaintiffs alleged that the defendants earned over $40,000 in fees and bonuses due
       to the home mortgage and over $30,959 in commissions on the first-year premiums for the
       respective policies and annuities. Additionally, the plaintiffs incurred $10,405 in unnecessary
       closing costs, paid over $75,249 in unnecessary interest-only mortgage payments, and
       incurred $25,937.39 in unnecessary surrender charges when removing their money from the
       investment plan.
¶ 20       The plaintiffs’ second amended complaint, filed April 8, 2011, alleged 15 counts against
       the defendants. The plaintiffs alleged claims against Waterstone for fraudulent concealment
       (count I), breach of fiduciary duty (count II), consumer fraud (count III), common-law fraud
       (count IV), and negligence and negligent supervision (count V). The plaintiffs alleged claims
       against Fara for fraudulent concealment (count VI), breach of fiduciary duty (count VII),
       consumer fraud (count VIII), and common-law fraud (count IX). The plaintiffs alleged claims
       against Diggles for fraudulent concealment (count X), consumer fraud (count XI), common-
       law fraud (count XII), conspiracy to defraud (count XIII), aiding and abetting (count XIV),
       and breach of fiduciary duty (count XV).
¶ 21       On June 20, 2011, Fara filed a combined motion to dismiss the plaintiffs’ amended
       complaint pursuant to section 2-619.1 of the Code (735 ILCS 5/2-619.1 (West 2008)).
       Diggles filed a similar motion that same day. Fara and Diggles argued that the plaintiffs’
       complaint involved the sale of life insurance and securities and was therefore barred by the
       two- and three-year limitations periods contained in section 13-214.4 of the Code (735 ILCS
       5/13-214.4 (West 2008)) and section 13 of the Illinois Securities Law of 1953 (Securities
       Law) (815 ILCS 5/13 (West 2008)). They further argued that the alleged misrepresentations
       were forward-looking statements that could not give rise to claims for fraud. They also
       argued that the complaint should be dismissed for failure to attach the written policies and
       annuity contracts to the complaint. Finally, they alleged that the documents contained
       cautionary language that negated the plaintiffs’ claims. Diggles attached her own affidavit
       to her motion to dismiss. Attached to Diggles’ affidavit were portions of the documents. The
       portions attached included the alleged “cautionary language.”
¶ 22       On June 27, 2011, Waterstone filed a motion to dismiss the plaintiffs’ second amended
       complaint pursuant to section 2-619 of the Code (735 ILCS 5/2-619 (West 2008)) and a
       separate motion to dismiss pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West
       2008)). Waterstone argued that the first four counts of the complaint failed to state a cause
       of action, because the plaintiffs failed to properly allege that Fara and Diggles were agents
       of Waterstone. Waterstone argued that the claim for negligence failed because Waterstone
       did not owe the plaintiffs any duty of care, the plaintiffs failed to allege any injury, and the
       claim was barred by the economic-loss doctrine.
¶ 23       On October 6, 2011, following argument, the trial court entered an order dismissing,
       pursuant to section 2-619 of the Code, the plaintiffs’ second amended complaint with
       prejudice as time barred. The trial court found that the plaintiffs purchased life insurance or
       securities and that they were given documents containing the exact parameters of the
       investments at that time. The trial court held that the plaintiffs were bound by the information
       contained in the documents. The claims thus were dismissed as barred by the two- and three-
       year statutes of limitations for insurance (735 ILCS 5/13-214.4 (West 2008)) and annuities

                                                 -6-
       (815 ILCS 5/13 (West 2008)). The plaintiffs filed a timely notice of appeal.

¶ 24                                       II. ANALYSIS
¶ 25       On appeal, the plaintiffs argue that the trial court erred in finding their claims barred by
       the two-year limitations period set forth in section 13-214.4 of the Code. The plaintiffs argue
       that their consumer fraud claims are governed by the three-year limitations period provided
       for in section 10a of the Consumer Fraud and Deceptive Business Practices Act (Consumer
       Fraud Act) (815 ILCS 505/10a (West 2008)) and that the remaining claims are governed by
       the five-year limitations period set forth in section 13-205 of the Code, which provides such
       limitation for “all civil actions not otherwise provided for” (735 ILCS 5/13-205 (West
       2008)). The plaintiffs further argue that, even if the two-year statute of limitations applied
       to their claims, they still were not barred, because the discovery rule tolled the statute of
       limitations. Alternatively, if not tolled by the discovery rule, the plaintiffs argue that the
       statute of limitations was tolled by the defendants’ fraudulent concealment.
¶ 26       In addition to responding to the plaintiffs’ arguments raised on appeal, Fara and
       Waterstone argue that the trial court’s dismissal of the plaintiffs’ complaint could be
       affirmed on other grounds. Fara argues that the dismissal of the complaint could be affirmed
       for failure to state a cause of action because all the statements attributed to Fara involved
       forward-looking statements, which are an improper basis for claims of fraud. Fara and
       Waterstone argue that the dismissal also could be affirmed because the plaintiffs failed to
       attach the documents to their complaint, in violation of section 2-606 of the Code (735 ILCS
       5/2-606 (West 2008)). Waterstone further argues that the complaint could be dismissed for
       failure to state any cause of action against Waterstone, because the plaintiffs failed to
       properly allege that Fara and Diggles were agents of Waterstone or that Waterstone owed the
       plaintiffs a duty of care.

¶ 27                                  A. Plaintiffs’ Arguments
¶ 28       The plaintiffs’ first contention on appeal is that the trial court erred in finding that the
       two-year limitations period set forth in section 13-214.4 of the Code (735 ILCS 5/13-214.4
       (West 2008)) applied to their claims. We need not address this argument, as the plaintiffs’
       subsequent argument, that the discovery rule tolled the applicable statute of limitations, is
       dispositive of the issue. Even if the two-year statute of limitations applied to the plaintiffs’
       claims, under the discovery rule the plaintiffs’ complaint was timely filed.
¶ 29       The defendants’ motions to dismiss based on a statute of limitations were brought under
       section 2-619 of the Code (735 ILCS 5/2-619 (West 2008)). A motion pursuant to section
       2-619 admits the legal sufficiency of the plaintiff’s claims and accepts all well-pleaded facts
       as true, but asserts an affirmative defense or other matter that would defeat the plaintiff’s
       claims. Kedzie & 103rd Currency Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 116 (1993).
       “When a court rules on a section 2-619 motion to dismiss, it ‘must interpret all pleadings and
       supporting documents in the light most favorable to the nonmoving party.’ ” Van Meter v.
       Darien Park District, 207 Ill. 2d 359, 367-68 (2003). We review de novo a dismissal
       pursuant to section 2-619. Wallace v. Smyth, 203 Ill. 2d 441, 447 (2002).

                                                 -7-
¶ 30       Pursuant to the “discovery rule,” a statute of limitations starts to run “when a person
       knows or reasonably should know of his injury and also knows or reasonably should know
       that it was wrongfully caused.” Knox College v. Celotex Corp., 88 Ill. 2d 407, 415 (1981).
       Generally, determining the point at which the running of the limitations period begins under
       the discovery rule is a question of fact. Vogt v. Bartelsmeyer, 264 Ill. App. 3d 165, 173
       (1994). However, where it is apparent from the undisputed facts that only one conclusion can
       be drawn, the question becomes one for the court. Witherell v. Weimer, 85 Ill. 2d 146, 156
       (1981). The discovery rule can be applied to actions covered by section 13-214.4 of the Code
       (State Farm Fire & Casualty Co. v. John J. Rickhoff Sheet Metal Co., 394 Ill. App. 3d 548,
       566 (2009)), as well as to actions brought under the Consumer Fraud Act. Kopley Group V.,
       L.P. v. Sheridan Edgewater Properties, Ltd., 376 Ill. App. 3d 1006, 1021 (2007).
¶ 31       Taking as true the well-pleaded facts of the plaintiffs’ complaint, we conclude that the
       plaintiffs could not have reasonably known of their injury or that it was wrongfully caused
       until February 2009 when Fara and Diggles did not return their phone calls. The plaintiffs
       alleged that the defendants made numerous misrepresentations regarding the benefits of
       refinancing the mortgage on their home to purchase life insurance policies and annuities,
       including benefits of investment gains, liquidity, safety, and lower taxes. Despite FINRA’s
       warnings of the complex nature of equity-indexed annuities and the risks of funding
       investments via a full mortgage, the defendants recommended such to the plaintiffs. The
       plaintiffs alleged that in January 2008 and in August 2008 they inquired as to the safety of
       the plan and the availability of funds to pay off their mortgage. At both those times, the
       defendants assured the plaintiffs that their money was earning good returns without risk of
       loss. The plaintiffs further alleged that it was not until February 2009, when Fara and Diggles
       did not return their phone calls, that they sought other professional advice and learned that
       the “investment plan” could never generate the returns represented. Accordingly, the statute
       of limitations began to run in February 2009 and the plaintiffs’ complaint, filed in April
       2010, was within the two-year statute of limitations for actions against insurance producers
       and within the three-year statute of limitations for consumer fraud actions. Based on our
       determination that the discovery rule tolled the running of the statute of limitations, we need
       not address the plaintiffs’ argument that the statute of limitations was tolled by the
       defendants’ fraudulent concealment.
¶ 32       The defendants argue that the plaintiffs failed to set forth sufficient facts to avoid the
       statute of limitations, because the life insurance policies and annuity contracts contained
       language putting the plaintiffs on notice of the investment risks. Specifically, the defendants
       point out that, in the application for the life insurance policies, the plaintiffs signed below
       a statement that “current illustrated values are based on past Index performance and are not
       intended to predict future performance.” In the same application, the plaintiffs acknowledged
       that “any values shown, other than guaranteed minimum values, are not guarantees, promises
       or warranties.” In the life insurance policy illustrations, also signed by the plaintiffs, the
       plaintiffs acknowledged that they understood that “this illustration assumes that the currently
       illustrated non-guaranteed elements will continue unchanged for all years shown. This is not
       likely to occur and actual results may be more or less favorable than those shown.” In the
       disclosure statements of the annuities, each plaintiff acknowledged that “I have received a

                                                -8-
       copy of the product brochure and Company disclosure material for this contract” and that
       “any values shown, other than the guaranteed minimum values, are not guarantees, promises
       or warranties.” The disclosures on the life insurance policies and the two Midland annuities
       indicated that there were surrender charges for early withdrawal.
¶ 33        The defendants argue that the disclosure documents were clearly drafted to be read by an
       audience of laymen, not financial advisors, and that these disclosures were sufficient to put
       the plaintiffs on notice that the defendants’ alleged misrepresentations were false. In arguing
       that the disclosures negate the plaintiffs’ claims, the defendants cite Lagen v. Balcor Co., 274
       Ill. App. 3d 11, 18 (1995), for the proposition that, where allegedly false statements are
       accompanied by meaningful cautionary language, those allegedly false statements are
       rendered immaterial.
¶ 34        In Lagen, the plaintiffs alleged that the defendants’ failure to disclose material facts
       fraudulently induced the plaintiffs to become limited partners in various real estate
       enterprises. Id. at 17. On appeal, this court held that “[i]t is well established that meaningful
       cautionary language in an offering document can negate the materiality of any alleged
       misrepresentation or omission and may thus form the basis for granting a motion to dismiss
       for failure to state a cause of action.” Id. at 18. We noted that this principle was known as the
       “bespeaks caution” doctrine. The plaintiffs had been sent documentation that served as offers
       to invest in the limited partnerships. Id. at 15. We found that the offering documents at issue
       were “replete with cautionary language warning potential investors of the risks attendant to
       limited partnerships, conflicts of interests, compensation and fees owed defendants and the
       tax aspects and uncertainties of the proposed investments.” Id. at 19. We affirmed the section
       2-615 dismissal of the plaintiffs’ complaint. Id. at 20.
¶ 35        Lagen is distinguishable from the present case. In Lagen, the plaintiffs claimed that the
       defendants did not warn them of or concealed the existence of facts that, as a whole, pointed
       toward an impending decline in the real estate market. In contrast, the plaintiffs in the present
       case claimed that the defendants, despite having been warned by FINRA, failed to disclose
       the complex nature of equity-indexed annuities and the known risks of funding investments
       through a full residential mortgage. “The ‘bespeaks caution’ doctrine cannot shield
       defendants’ statements from liability where it is alleged that defendants possessed material
       adverse information which they failed to disclose at the time of the offering.” Olczyk v.
       Cerion Technologies, Inc., 308 Ill. App. 3d 905, 915 (1999).
¶ 36        Furthermore, cautionary language must be detailed and specific and general risk warnings
       or mere boilerplate is not sufficient to prevent misinformation. In re NationsMart Corp.
       Securities Litigation, 130 F.3d 309, 317 (8th Cir. 1997). In Lagen, the cautionary language
       was extensive, involving multiple paragraphs contained in pamphlets, some over 100 pages
       long, addressing a multitude of risks. Lagen, 274 Ill. App. 3d at 15, 19-20. In the present
       case, the cautionary language consisted of nothing more than single statements that there was
       no guaranteed return from any of the individual life insurance policies or annuities. It was
       neither detailed nor specific. The disclosure statements at issue did not address the known
       risks of 100% mortgages and did not explain any of the risks of the investment plan or
       equity-indexed annuities in a sufficiently substantive manner.


                                                 -9-
¶ 37       The defendants also argue that the discovery rule is inapplicable because of the built-in
       period of repose contained in section 13 of the Securities Law. Section 13 provides:
               “D. No action shall be brought for relief under this Section or upon or because of any
           of the matters for which relief is granted by this Section after 3 years from the date of
           sale; provided, that if the party bringing the action neither knew nor in the exercise of
           reasonable diligence should have known of any alleged violation of subsection E, F, G,
           H, I or J of Section 12 of this Act which is the basis for the action, the 3 year period
           provided herein shall begin to run upon the earlier of:
                    (1) the date upon which the party bringing the action has actual knowledge of the
               alleged violation of this Act; or
                    (2) the date upon which the party bringing the action has notice of facts which in
               the exercise of reasonable diligence would lead to actual knowledge of the alleged
               violation of this Act; but in no event shall the period of limitation so extended be
               more than 2 years beyond the expiration of the 3 year period otherwise applicable.”
               815 ILCS 5/13(D) (West 2008).
       This argument is without merit for two reasons. First, the life insurance policies and annuities
       are not securities. The exhibits attached to Diggles’ affidavit indicate that the life insurance
       policies and annuities were not registered as securities. Accordingly, this action is not
       governed by the Securities Law. Second, even if the repose period in the Securities Law did
       apply, the plaintiffs’ complaint would still not be time barred. Based on our foregoing
       analysis regarding the discovery rule, we would similarly find that the plaintiffs did not have
       notice of facts leading to actual knowledge of the alleged violations of the Securities Law
       until February 2009. Their complaint, filed in April 2010, would be within the three-year
       statute of limitations and the five-year statute of repose.

¶ 38                                 B. Defendants’ Arguments
¶ 39                              1. Forward-Looking Statements
¶ 40       Fara argues that, even if we do not affirm on the basis of the statute of limitations, we
       should affirm the dismissal of the claims for consumer fraud and common-law fraud,
       pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 2008)), for failure to state
       a cause of action. Specifically, Fara argues that all the statements attributed to him in the
       complaint were entirely forward-looking statements, which cannot give rise to a cause of
       action for consumer or common-law fraud. “[A]ssurances as to future events are generally
       not considered misrepresentations of fact.” Power v. Smith, 337 Ill. App. 3d 827, 832 (2003).
       “Generally, financial projections are considered to be statements of opinion, not fact.” Lagen,
       274 Ill. App. 3d at 17.
¶ 41       The plaintiffs argue that Fara’s statements were not opinions or promises of future action.
       Rather, they argue that Fara knew the investments could never live up to the returns he had
       promised the plaintiffs. The plaintiffs further argue that Fara’s representation that he had
       achieved positive results in the past with the same investment scheme was a
       misrepresentation of past performance, not promised future action.


                                                -10-
¶ 42       Generally an expression of opinion will not support an action for fraud. Duhl v. Nash
       Realty Inc., 102 Ill. App. 3d 483, 489 (1981). However, where a representation as to value
       is made as a statement of fact for the listener to rely upon, rather than a mere expression of
       opinion, the representation is treated as a statement of fact. Id. As quoted in Duhl:
           “ ‘Wherever a party states a matter which might otherwise be only an opinion but does
           not state it as the expression of the opinion of his own but as an affirmative fact material
           to the transaction, so that the other party may reasonably treat it as a fact and rely upon
           it as such, then the statement clearly becomes an affirmation of the fact within the
           meaning of the rule against fraudulent misrepresentation. Statements of value are
           common examples, and where made in pursuance of a scheme on the part of the
           defendant to induce plaintiff to trade with him such statements constitute fraud and
           deceit.’ ” Id. (quoting Buttitta v. Lawrence, 346 Ill. 164, 173 (1931)).
       “Thus, the general rule is that it is not ‘the form of the statement which is important or
       controlling, but the sense in which it is reasonably understood.’ ” West v. Western Casualty
       & Surety Co., 846 F.2d 387, 394 (7th Cir. 1988) (quoting Prosser and Keeton on Torts § 109,
       at 755 (W. Page Keeton et al. eds., 5th ed. 1984)). “Whether a statement is one of fact or of
       opinion depends on all the facts and circumstances of a particular case.” Id. at 393 (citing
       Buttitta, 346 Ill. at 173).
¶ 43       No cause of action should be dismissed on the pleadings unless it clearly appears that no
       set of facts can be proved under the complaint entitling the plaintiffs to relief. Bryson v. News
       America Publications, Inc., 174 Ill. 2d 77, 86-87 (1996). In the present case, the plaintiffs
       have sufficiently alleged that the statements made by Fara and Diggles were representations
       of fact rather than opinion. The plaintiffs alleged that Fara and Diggles represented that their
       funds were 100% safe and that the investment plan was a proven method to increase their net
       worth. The plaintiffs also alleged that Fara and Diggles promised them guaranteed benefits
       and $96,000 in returns in five years. Accordingly, it would be improper to dismiss the
       plaintiffs’ claims for consumer fraud and common-law fraud, as the statements at issue, as
       alleged, were not matters of opinion. Duhl, 102 Ill. App. 3d at 489.

¶ 44                          2. Failure to Attach Written Instruments
¶ 45       Waterstone and Fara next argue that, since the complaint was based on alleged
       misrepresentations as to the life insurance policies and annuities, the plaintiffs were required
       to attach those documents to the complaint. Section 2-606 of the Code provides that if a
       claim “is founded upon a written instrument, a copy thereof, or of so much of the same as
       is relevant, must be attached to the pleading as an exhibit or recited therein, unless the
       pleader attaches to his or her pleading an affidavit stating facts showing that the instrument
       is not accessible to him or her.” 735 ILCS 5/2-606 (West 2008); see also Sherman v. Ryan,
       392 Ill. App. 3d 712, 733 (2009). The exhibits to which section 2-606 applies generally
       consist of instruments being sued upon, such as contracts. Garrison v. Choh, 308 Ill. App.
       3d 48, 53 (1999). In the present case, the plaintiffs’ claims are not based on breach of the life
       insurance contracts or annuity contracts. Rather, the claims are founded on alleged
       misrepresentations that induced the plaintiffs to purchase the insurance policies and


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       annuities. Accordingly, the policies and annuities did not need to be attached to the plaintiffs’
       complaint.

¶ 46                         3. Failure to Allege an Agency Relationship
¶ 47        Waterstone argues that the first four counts of the plaintiffs’ complaint should be
       dismissed pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 2008)) for failure
       to state a cause of action. Specifically, Waterstone notes that the claims for fraudulent
       concealment, breach of fiduciary duty, consumer fraud, and common-law fraud are based on
       the theory of agency. Waterstone argues that the plaintiffs have failed to sufficiently allege
       that Fara and Diggles acted with either actual authority or apparent authority as Waterstone’s
       agents in dealings with the plaintiffs.
¶ 48        “An agency is a fiduciary relationship in which the principal has the right to control the
       agent’s conduct and the agent has the power to act on the principal’s behalf.” Zahl v. Krupa,
       365 Ill. App. 3d 653, 660 (2006). An agent’s authority can be either actual or apparent.
       Actual authority can be either express or implied. Express authority occurs when a principal
       explicitly grants the agent authority to perform a particular act. Id. at 660-61. Implied
       authority is actual authority proved circumstantially by evidence of the agent’s position. Id.
       at 661. It arises when the conduct of the principal, reasonably interpreted, causes the agent
       to believe that the principal desires him to act on the principal’s behalf. See Restatement
       (Second) of Agency § 26 (1958). Apparent authority occurs “when the principal holds an
       agent out as possessing the authority to act on its behalf, and a reasonably prudent person,
       exercising diligence and discretion, would naturally assume the agent to have this authority
       in light of the principal’s conduct.” Zahl, 365 Ill. App. 3d at 661.
¶ 49        In determining whether the allegations of the plaintiffs’ complaint established apparent
       authority we find Zahl instructive. In Zahl, the plaintiffs appealed the section 2-615 dismissal
       of their claims against the defendants, Jones & Brown Co., Inc., and its directors and officers,
       including its president, Ronald Krupa. Id. at 655. The plaintiffs had alleged that they were
       swindled by Krupa when he convinced them to invest in a fund, the “Scudder” fund, that he
       claimed was open only to officers and directors of Jones & Brown and their friends and
       families. Id. Krupa ultimately failed to invest the plaintiffs’ funds and lost their money
       through gambling. Id. at 656. The plaintiffs’ breach-of-contract and fraud counts were
       premised on the assertion that Krupa acted as the agent or apparent agent of Jones & Brown.
       Id. at 657. This court determined that the plaintiffs had pled sufficient facts that, if true,
       would prove that Krupa acted with the apparent authority of Jones & Brown in taking the
       plaintiffs’ money. Id. at 663. The plaintiffs had pled that Jones & Brown employed Krupa
       for at least 20 years and had supplied him with an office, a phone, and company letterhead.
       This court held that this created the impression that Krupa had authority from Jones & Brown
       to act as he did. Id. The plaintiffs had also alleged that their decision to invest in the Scudder
       fund was based on their past successes in investing with Krupa. Id. This was held to establish
       that the plaintiffs reasonably believed that Jones & Brown permitted outside parties to invest
       in the Scudder fund and that Krupa was acting with authority from Jones & Brown. Id.
¶ 50        In the present case, the plaintiffs have alleged facts that, if proven, would entitle the


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       plaintiffs to relief from Waterstone under a theory of apparent agency. First, according to the
       allegations, Fara had been an authorized representative of Waterstone for four years.
       Waterstone was in the business of providing financial planning services. Waterstone was also
       licensed to sell variable life insurance policies and annuities. Fara operated a branch office
       for Waterstone. The office was identified as a Waterstone branch office on the directory of
       the building where the office was located. These facts created the impression that Fara had
       authority from Waterstone when providing financial planning services to the plaintiffs.
       Additionally, the allegations support the plaintiffs’ reasonable belief that Fara was at all
       times acting under the authority of Waterstone. Fara ran his outside business activities out
       of the Waterstone office and with the same phone number as that of Waterstone. The five
       business meetings between Fara, Diggles, and the plaintiffs occurred at the Waterstone
       office.
¶ 51       The plaintiffs also have sufficiently alleged an apparent agency relationship between
       Diggles and Waterstone. Generally, “a corporation is only a legal entity and can act only
       through a person.” Shapiro v. DiGuilio, 95 Ill. App. 2d 184, 192 (1968). Plaintiffs are
       entitled to consider an agent’s words and conduct as those of the principal itself where it is
       reasonable to do so. Zahl, 365 Ill. App. 3d at 661. The plaintiffs alleged that Diggles worked
       from Fara’s Waterstone office and that Fara held out Diggles as a financial planner in the
       businesses he ran out of the Waterstone office. Accordingly, Waterstone, through Fara,
       created the impression that Diggles had authority from Waterstone in providing services to
       the plaintiffs. The plaintiffs’ belief that Diggles was acting under the authority of Waterstone
       was reasonable since Diggles was working out of the Waterstone office and the parties had
       multiple meetings at that office. Accordingly, the plaintiffs have sufficiently pled apparent
       authority to withstand a section 2-615 dismissal.

¶ 52                     4. Negligence Claim and the Moorman Doctrine
¶ 53       Waterstone next argues that the plaintiffs’ negligence claim (count V) is barred by the
       economic-loss doctrine. In Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69,
       91 (1982), the supreme court held that a “plaintiff cannot recover for solely economic loss
       under the tort theories of strict liability, negligence and innocent misrepresentation.”
       Economic damages are “ ‘damages for inadequate value, costs of repair and replacement of
       the defective product, or consequent loss of profits–without any claim of personal injury or
       damage to other property ***’ [citation] ***.” Id. at 82. Based on this definition, to the
       extent that the plaintiffs allege negligence committed by Waterstone itself, their claim is
       barred by the Moorman doctrine because the plaintiffs are requesting only economic
       damages.
¶ 54       The plaintiffs, relying on Van Horne v. Muller, 294 Ill. App. 3d 649, 658 (1998) (Van
       Horne I), argue that a complaint stating a cause of action for negligent supervision need not
       allege physical injury. This is in fact what the appellate court held in that case. However, the
       appellate court did not specifically discuss the Moorman doctrine in that case. On review,
       the Illinois Supreme Court reversed the appellate court’s holding in part. Van Horne v.
       Muller, 185 Ill. 2d 299, 316 (1998) (Van Horne II). However, the supreme court refused to


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       consider whether a claim for negligent supervision needed to allege a physical injury, finding
       that the negligent supervision claim failed for other reasons. Id. at 311-12. The supreme court
       also did not address the Moorman doctrine.
¶ 55       The plaintiffs’ argument is without merit. Whether there is a physical injury in this case
       is not the issue. The issue is whether the plaintiffs are seeking solely economic losses, which
       they are. Pursuant to Moorman, a plaintiff cannot recover such losses under a theory of
       negligence. Accordingly, their claim is barred.
¶ 56       The plaintiffs further argue that, even if the Moorman doctrine applies to their negligence
       claim against Waterstone, the claim falls under one of the recognized exceptions. There are
       three well-known exceptions to the Moorman doctrine: “(1) where the plaintiff sustained
       damage, i.e., personal injury or property damage, resulting from a sudden or dangerous
       occurrence [citation]; (2) where the plaintiff’s damages are proximately caused by a
       defendant’s intentional, false misrepresentation, i.e., fraud [citation]; and (3) where the
       plaintiff’s damages are proximately caused by a negligent misrepresentation by a defendant
       in the business of supplying information for the guidance of others in their business
       transactions [citation].” (Emphasis omitted.) In re Chicago Flood Litigation, 176 Ill. 2d 179,
       199 (1997). In addition to these three, the Illinois Supreme Court also has stated that an
       exception applies where the tort duty is extracontractual. Congregation of the Passion, Holy
       Cross Province v. Touche Ross & Co., 159 Ill. 2d 137, 162 (1994). The plaintiffs argue that
       their claim falls within the second and third exceptions. We disagree.
¶ 57       In a claim for negligent supervision it is the employer’s wrongful act rather than the
       employee’s wrongful act that is at issue. Van Horne II, 185 Ill. 2d at 311. The plaintiffs have
       not alleged either any intentional or any negligent misrepresentations by Waterstone itself.
       Rather, they allege that Waterstone failed to adequately supervise Fara and Diggles.
       Accordingly, their claim does not fall within the second or third exception to the Moorman
       doctrine noted above. We therefore agree that the dismissal of count V against Waterstone
       may be affirmed on the basis of the Moorman doctrine. See Cangemi v. Advocate South
       Suburban Hospital, 364 Ill. App. 3d 446, 460 (2006) (a reviewing court may affirm on any
       basis appearing in the record regardless of the trial court’s reasoning). Based on this
       determination, we need not address Waterstone’s argument that the dismissal of the
       negligence/negligent supervision claim should be affirmed for failure to state a cause of
       action.

¶ 58                                    III. CONCLUSION
¶ 59       For the foregoing reasons, we affirm the dismissal of count V of the plaintiffs’ complaint,
       alleging a cause of action against Waterstone for negligence and negligent supervision. We
       reverse the dismissal of the remaining claims and remand for further proceedings consistent
       with this opinion.

¶ 60      Affirmed in part and reversed in part; cause remanded.



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