In Al Maha Trading v. Darley, 2014 WL 2459674 (N.D. Ill. 2014), the plaintiff brought fraud and civil conspiracy claims in connection with a fire truck sales contract. The plaintiff, a Saudi Arabia-based fire and rescue services company, ordered six fire trucks and related equipment from the Illinois-based defendant.
The plaintiff claimed the defendant submitted inflated invoices for the trucks and paid nearly $500k in secret kickbacks to plaintiff’s agent.
The Northern District denied defendant’s motion to dismiss and summarized Illinois fraud and civil conspiracy law in the process.
Fraudulent Misrepresentation and Omission
The elements of common law fraud are: (1) a false statement of material fact, (2) knowledge that the statement was false, (3) intent to induce the defendant to act, (4) reliance on the statement by the plaintiff; and (5) damages.
Fraudulent concealment has the same elements with the additional requirement that the plaintiff show the defendant omitted or concealed a material fact when it had a duty to disclose it.
The Court held that plaintiff’s claims of inflated invoices and bribes to plaintiff’s agent sufficiently alleged a misrepresentation (the false invoices) and concealment (failure to alert plaintiff to defendant’s bribe payments).
The plaintiff also adequately pled that the defendant knew the invoices were false, that plaintiff relied on them and sustained monetary damages by paying several million dollars for the trucks.
The Court also sustained the plaintiff’s civil conspiracy claim. The plaintiff alleged that the defendant and plaintiff’s Fire Chief conspired to submit excessive equipment price lists to the plaintiff so that defendant could make truck sales and cover the secret kickbacks to plaintiff’s agent.
To plead and prove a civil conspiracy in Illinois, the plaintiff must demonstrate (1) a combination of two or more persons, (2) for the purpose of accomplishing either an unlawful purpose or a lawful purpose by unlawful means, (3) concerted action, and (4) an overt tortious or unlawful act to further the plan. (*8).
The Court found that plaintiff alleged all of these elements. The combination consisted of defendant and the plaintiff’s agent who received the secret kickbacks. The unlawful means consisted of defendant submitting swollen invoices and paying secret bribes to the agent.
While a conspiracy claim will normally not lie against a corporation acting through one of its officers based on agency rules (because the corporation can only act through its agents), that rule doesn’t apply in cases where the corporate officer actively participates in the tortious conduct.
Here, the plaintiff’s agent actively participated in the kickback scheme – an unlawful act taken in connection with accomplishing a lawful purpose – the sale of the fire trucks. (*9). As a result, the Fire Chief’s actions in arranging the bribes were separate from his role as a corporate agent.
Consumer Fraud Act – Can A Foreign Corporation Sue Under the Act?
The Court answered “yes.” To determine whether a non-resident can invoke protections of the Illinois consumer fraud statute, the Court considers (a) the parties’ residence, (b) location of the transaction and of plaintiff’s contacts with defendant, (d) the place where the contracts were executed and performed, (e) where the deceptive statements were made, and (f) where payments were sent to and from. (*10).
The Court held that the plaintiff alleged enough of a connection with Illinois to allow it to sue for consumer fraud. Plaintiff’s contacts with Illinois were initiated by defendant (an Illinois corporation) and the subject matter of the contract – the fire trucks – originated in and were shipped to plaintiff from Illinois. Taken together, these factors led the Court to uphold the consumer fraud claim despite plaintiff’s foreign company status. (*10).
– a foreign company can utilize the Illinois consumer fraud statute against an Illinois company – at least at the pleading stage;
– a corporate officer who participates in a fraudulent scheme can be personally liable on a civil conspiracy claim.