{ "id": 4292940, "name": "MICHAEL DLOOGATCH et al., on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants, v. JOHN N. BRINCAT et al., Defendants-Appellees (Terra Foundation for the Arts, Intervening Class Member and Separate Appellant)", "name_abbreviation": "Dloogatch v. Brincat", "decision_date": "2009-12-16", "docket_number": "Nos. 1\u201408\u20140168, 1\u201408\u20140281 cons.", "first_page": "842", "last_page": "856", "citations": [ { "type": "official", "cite": "396 Ill. App. 3d 842" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "251 Ill. App. 3d 730", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2962463 ], "weight": 3, "year": 1993, "pin_cites": [ { "page": "732-33" }, { "page": "736" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/251/0730-01" ] }, { "cite": "975 F.2d 1370", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 10519005 ], "year": 1992, "pin_cites": [ { "parenthetical": "holding that the plaintiffs claim failed because any loss was not caused by the failure to disclose or because they were unable to realize the true value of the stock, but because the true value of the stock was zero" } ], "opinion_index": 0, "case_paths": [ "/f2d/975/1370-01" ] }, { "cite": "199 F. Supp. 2d 461", "category": "reporters:federal", "reporter": "F. Supp. 2d", "case_ids": [ 9432954 ], "year": 2002, "pin_cites": [ { "page": "487", "parenthetical": "concluding that the claims of the retaining shareholders fail to adequately plead causation between the misrepresentation and the harm since the loss resulted from disclosure and not from fraud" } ], "opinion_index": 0, "case_paths": [ "/f-supp-2d/199/0461-01" ] }, { "cite": "490 F. Supp. 2d 784", "category": "reporters:federal", "reporter": "F. Supp. 2d", "case_ids": [ 4123366 ], "year": 2007, "pin_cites": [ { "parenthetical": "holding that Texas statutes expressly prohibited holder claims" } ], "opinion_index": 0, "case_paths": [ "/f-supp-2d/490/0784-01" ] }, { "cite": "857 F. Supp. 1011", "category": "reporters:federal", "reporter": "F. 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App. 3d", "case_ids": [ 910282 ], "weight": 2, "year": 1998, "pin_cites": [ { "page": "323" }, { "page": "323" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/297/0317-01" ] }, { "cite": "253 Ill. App. 3d 750", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5424705 ], "year": 1993, "pin_cites": [ { "page": "758" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/253/0750-01" ] }, { "cite": "88 Ill. 2d 407", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3083558 ], "year": 1981, "pin_cites": [ { "page": "427" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/88/0407-01" ] }, { "cite": "172 Ill. 2d 399", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 55991 ], "year": 1996, "pin_cites": [ { "page": "408", "parenthetical": "in opposing a motion to dismiss under section 2 - 615, a plaintiff cannot rely on mere conclusions of law or fact unsupported by specific factual allegations" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/172/0399-01" ] }, { "cite": "132 Cal. Rptr. 2d 490", "category": "reporters:state", "reporter": "Cal. Rptr. 2d", "weight": 4, "year": 2003, "pin_cites": [ { "page": "492" }, { "page": "492" }, { "page": "503" }, { "page": "503" } ], "opinion_index": 0 }, { "cite": "65 P.3d 1255", "category": "reporters:state_regional", "reporter": "P.3d", "weight": 4, "year": 2003, "pin_cites": [ { "page": "1256" }, { "page": "1257" }, { "page": "1265" }, { "page": "265" } ], "opinion_index": 0 }, { "cite": "30 Cal. 4th 167", "category": "reporters:state", "reporter": "Cal. 4th", "case_ids": [ 269734 ], "weight": 4, "year": 2003, "pin_cites": [ { "page": "171" }, { "page": "171" }, { "page": "184" }, { "page": "184" } ], "opinion_index": 0, "case_paths": [ "/cal-4th/30/0167-01" ] }, { "cite": "421 U.S. 723", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 541651 ], "weight": 6, "year": 1975, "pin_cites": [ { "page": "746" }, { "page": "555" }, { "page": "1930" } ], "opinion_index": 0, "case_paths": [ "/us/421/0723-01" ] }, { "cite": "17 C.F.R. \u00a7240", "category": "laws:admin_compilation", "reporter": "C.F.R.", "opinion_index": 0 }, { "cite": "328 Ill. App. 3d 696", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2183335 ], "weight": 2, "year": 2002, "pin_cites": [ { "page": "709" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/328/0696-01" ] }, { "cite": "332 Ill. App. 3d 300", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 1033968 ], "year": 2002, "pin_cites": [ { "page": "309" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/332/0300-01" ] }, { "cite": "131 Ill. 2d 428", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5569862 ], "year": 1989, "pin_cites": [ { "page": "457" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/131/0428-01" ] }, { "cite": "79 Ill. 2d 282", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3070566 ], "year": 1980, "pin_cites": [ { "page": "286" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/79/0282-01" ] }, { "cite": "222 Ill. 2d 422", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3602359 ], "year": 2006, "pin_cites": [ { "page": "429" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/222/0422-01" ] }, { "cite": "204 Ill. 2d 363", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 609705 ], "year": 2003, "pin_cites": [ { "page": "365" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/204/0363-01" ] }, { "cite": "209 Ill. 2d 76", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5461847 ], "weight": 2, "year": 2004, "pin_cites": [ { "page": "81" }, { "page": "81" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/209/0076-01" ] }, { "cite": "547 U.S. 71", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 3275615 ], "weight": 6, "year": 2006, "pin_cites": [ { "page": "89" }, { "page": "194" }, { "page": "1515" } ], "opinion_index": 0, "case_paths": [ "/us/547/0071-01" ] }, { "cite": "219 Ill. 2d 182", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3598302 ], "weight": 2, "year": 2005, "opinion_index": 0, "case_paths": [ "/ill-2d/219/0182-01" ] }, { "cite": "748 F. Supp. 254", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 4109002 ], "weight": 2, "year": 1990, "pin_cites": [ { "page": "266-67" }, { "page": "264" } ], "opinion_index": 1, "case_paths": [ "/f-supp/748/0254-01" ] }, { "cite": "268 F. Supp. 2d 1305", "category": "reporters:federal", "reporter": "F. Supp. 2d", "case_ids": [ 9105882 ], "weight": 2, "year": 2003, "pin_cites": [ { "page": "1313-14" } ], "opinion_index": 1, "case_paths": [ "/f-supp-2d/268/1305-01" ] }, { "cite": "196 Ill. App. 3d 920", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2489212 ], "year": 1990, "pin_cites": [ { "page": "926" } ], "opinion_index": 1, "case_paths": [ "/ill-app-3d/196/0920-01" ] }, { "cite": "356 Ill. App. 3d 795", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3749195 ], "year": 2005, "pin_cites": [ { "page": "804" } ], "opinion_index": 1, "case_paths": [ "/ill-app-3d/356/0795-01" ] }, { "cite": "140 Ill. 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Rptr. 2d", "weight": 4, "year": 2003, "pin_cites": [ { "page": "495" }, { "page": "503" }, { "page": "503" }, { "page": "508", "parenthetical": "Kennard, J., concurring" } ], "opinion_index": 1 }, { "cite": "65 P.3d 1255", "category": "reporters:state_regional", "reporter": "P.3d", "weight": 4, "year": 2003, "pin_cites": [ { "page": "1259" }, { "page": "1265" }, { "page": "1265" }, { "page": "1270" } ], "opinion_index": 1 }, { "cite": "30 Cal. 4th 167", "category": "reporters:state", "reporter": "Cal. 4th", "case_ids": [ 269734 ], "weight": 4, "year": 2003, "pin_cites": [ { "page": "174" }, { "page": "184" }, { "page": "184" }, { "page": "191" } ], "opinion_index": 1, "case_paths": [ "/cal-4th/30/0167-01" ] } ], "analysis": { "cardinality": 1350, "char_count": 36251, "ocr_confidence": 0.77, "pagerank": { "raw": 6.747131868816464e-08, "percentile": 0.40885569004216077 }, "sha256": "74883b71481231ae8814e8b5ed80bbbbe0d6a3339001b6f1e2a167e35db0f35b", "simhash": "1:aa6a459525761452", "word_count": 5864 }, "last_updated": "2023-07-14T21:39:01.503812+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "MICHAEL DLOOGATCH et al., on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants, v. JOHN N. BRINCAT et al., Defendants-Appellees (Terra Foundation for the Arts, Intervening Class Member and Separate Appellant)." ], "opinions": [ { "text": "JUSTICE COLEMAN\ndelivered the opinion of the court:\nPlaintiffs, a class of individual investors, appeal from an order of the circuit court of Cook County granting defendant KPMG\u2019s motion to dismiss pursuant to section 2 \u2014 615 of the Illinois Code of Civil Procedure (735 ILCS 5/2 \u2014 615 (West 2006)) for failing to state a claim upon which relief may be granted. This appeal was consolidated with the separately filed appeal by Terra Foundation for the Arts (Terra), a purported intervening class member. Plaintiffs claim that they retained their stock in Mercury Finance Company (Mercury) based on fraudulent financial reports prepared by Mercury\u2019s auditor, KPMG, and suffered pecuniary damage as a result of the fraud. KPMG is the only remaining defendant. On appeal, plaintiffs argue that the trial court erred in dismissing their fourth amended complaint because they adequately plead reliance and damage to maintain their common law fraud claim; they are not required to plead the precise method to be used at trial to calculate damages; and the fourth amended complaint does plead a method of calculating damages. Terra joined in plaintiffs\u2019 arguments and wrote separately to further argue in support of an alternate measure of out-of-pocket damages articulated by plaintiffs. Defendant contends that plaintiffs\u2019 theories for calculating damages are invalid, reliance has not sufficiently been pled, and the complaint only asserts derivative claims.\nThe instant appeal presents a case of first impression in Illinois. Our courts have never considered whether the \u201cholder\u201d of securities may bring a common law fraud claim and what the pleading requirements are for such a claim, as well as which method of calculating damages is appropriate. For the reasons set forth below, we affirm the trial court\u2019s order dismissing the complaint.\nPROCEDURAL BACKGROUND\nPrior to February 23, 1994, the members of the class purchased publicly traded common stock in Mercury Finance Company. Mercury was a consumer finance company engaged in the business of purchasing individual installment sales finance contracts from automobile dealers, extending short-term installment loans to consumers, and selling credit insurance. Defendant KPMG is an accounting firm that Mercury hired to perform audits of Mercury\u2019s financial statements from 1993 to 1997. On January 29, 1997, Mercury publicly reported that the financial reports from 1993 to 1996 had been overstated due to accounting errors. That same day the New York Stock Exchange suspended trading on Mercury stock. On January 28, 1997, the stock was trading at $14,875 per share. When trading of Mercury stock reopened on January 31, 1997, the price had dropped to $2,125 per share.\nOn July 16, 1996, plaintiffs filed a class action complaint against Mercury\u2019s chief executive officer and directors, Mercury, and KPMG alleging negligence, negligent misrepresentation, breach of fiduciary duty (except against KPMG), and common law fraud. The original complaint was dismissed and plaintiffs filed a first amended complaint alleging negligence, negligent misrepresentation, and common law fraud as well as a count against KPMG for aiding and abetting the perpetration of a fraud. William C. Croft, one of Mercury\u2019s outside directors, was dismissed. Mercury was also dismissed after filing for bankruptcy protection.\nKPMG filed a motion to dismiss the first amended complaint. During argument on the motion, the trial court sua sponte raised the issue of federal preemption based upon the Securities Exchange Act of 1934. Although all the parties agreed that plaintiffs\u2019 claims were not preempted, the trial court dismissed on that basis.\nPlaintiffs appealed the order dismissing the first amended complaint and this court reversed and remanded after concluding that the claim was not preempted by federal law. In Dloogatch v. Brincat, No. 1\u201498\u20143139 (1999) (unpublished order under Supreme Court Rule 23), this court explicitly stated that it expressed no opinion on whether any of plaintiffs\u2019 allegations were sufficient to withstand a motion to dismiss.\nFollowing remand to the trial court, defendant filed another motion to dismiss, which was denied as to negligence, negligent misrepresentation and fraud, but was granted on the count against KPMG for aiding and abetting a fraud.\nOn December 7, 1999, plaintiffs reached a settlement with Mercury\u2019s bankruptcy estate and the directors and officers. Plaintiffs filed a motion to certify the class. Judge McGann granted the motion and certified the class. In the order certifying the class, Judge McGann stated that the court need not determine the appropriate measure of damages at that instant, but the \u201cbenefit of the bargain\u201d was not the appropriate measure in this case.\nKPMG filed a motion to dismiss plaintiffs\u2019 second amended complaint, which the trial court granted. The trial court directed plaintiffs to replead certain allegations to make it clear that they were only being pled to preserve the record. The trial court also instructed plaintiffs that Baughman needed to specify the value of his stock at the time the fraud began and the price at which he sold it. The trial court rejected the \u201cbenefit of the bargain\u201d and the \u201cyardstick\u201d alternative as appropriate measures of damages. In its order dismissing the second amended complaint, the trial court stated generally that in \u201cholder claims,\u201d plaintiffs could plead damage through \u201callegations that demonstrate out of pocket damages proximately caused by the fraudulent inducement to refrain from selling.\u201d\nOn September 20, 2005, plaintiffs filed the third amended complaint. Defendants filed a motion to dismiss, which the trial court denied in substantial part with directions to further comply with the previous order to \u201cclean up\u201d the complaint. In its order, the trial court noted that plaintiffs complied with the court\u2019s previous directions regarding pleading damage by alleging two methods of measuring \u201cout-of-pocket\u201d damages. The trial court also ruled that \u201cbenefit of the bargain\u201d was an inappropriate measure of damages based on the Illinois Supreme Court\u2019s then-recent decision in Price v. Philip Morris, Inc., 219 Ill. 2d 182 (2005). The trial court further directed the parties to brief the issue of whether Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 164 L. Ed. 2d 179, 126 S. Ct. 1503 (2006), preempted plaintiffs\u2019 claim based on the Securities Litigation Uniform Standards Act (SLUSA) (15 U.S.C. \u00a778bb (2000)).\nPlaintiffs filed their fourth amended complaint on February 27, 2007. Defendants filed a motion to dismiss the complaint. In the motion, defendants acknowledged that plaintiffs had complied with the trial court\u2019s instructions for amending the complaint, but argued that substantively the complaint was the same and still did not state a cause of action. KPMG further argued that plaintiffs\u2019 claims were preempted by SLUSA.\nOn December 19, 2007, the trial court granted KPMG\u2019s motion to dismiss. The trial court rejected the argument that SLUSA preempted plaintiffs\u2019 claims because plaintiffs had filed the cause of action prior to the enactment of SLUSA and, therefore, it did not apply. The trial court found that although plaintiffs had complied with previous pleading instructions, under no circumstances could plaintiffs adequately plead \u201cany damage that was proximately caused by KPMG\u2019s misrepresentations.\u201d Plaintiffs\u2019 current appeal is from this order dismissing their fourth amended complaint.\nDISCUSSION\nAs a preliminary note, plaintiffs\u2019 proposed cause of action, the \u201cholder claim,\u201d would be preempted by the SLUSA, which prohibits class action lawsuits under state law that allege fraudulent misrepresentations or omissions in connection with the purchase or sale of a security, and which the United States Supreme Court held in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 89, 164 L. Ed. 2d 179, 194, 126 S. Ct. 1503, 1515 (2006), applies equally to \u201cholder claims.\u201d Not only was the present case filed prior to the enactment of SLUSA, it is unclear from the record whether the purported class has 50 or more members. Thus, had the present cause of action accrued after the enactment of SLUSA and the class had more than 50 members, it would be preempted.\nPursuant to section 2 \u2014 615 of the Illinois Code of Civil Procedure (735 ILCS 5/2 \u2014 615 (West 2006)), a motion to dismiss challenges the legal sufficiency of the complaint. On review, the question is \u201cwhether the allegations of the complaint, when construed in the light most favorable to the plaintiff, are sufficient to establish a cause of action upon which relief can be granted.\u201d Vitro v. Mihelcic, 209 Ill. 2d 76, 81 (2004). All facts apparent from the face of the pleadings, including any exhibits attached thereto, must be considered. Beahringer v. Page, 204 Ill. 2d 363, 365 (2003). A cause of action should not be dismissed under section 2 \u2014 615 unless it is clearly apparent that no set of facts can be proved that would entitle the plaintiff to recovery. Marshall v. Burger King Corp., 222 Ill. 2d 422, 429 (2006). The standard of review is de novo. Vitro, 209 Ill. 2d at 81.\nThe elements of a cause of action for fraudulent misrepresentation (sometimes called \u201cfraud\u201d or \u201cdeceit\u201d) are: \u201c(1) [a] false statement of material fact (2) known or believed to be false by the party making it; (3) intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from that reliance.\u201d Soules v. General Motors Corp., 79 Ill. 2d 282, 286 (1980).\nHere, the parties dispute the sufficiency of the pleadings only as to the elements of \u201creliance\u201d and \u201cdamage.\u201d No court in Illinois has, as of yet, decided whether holders of securities even have a cognizable claim based on common law fraud. Thus, Illinois courts have not determined the pleading requirements to state such a claim. However, our supreme court has held that common law fraud demands a \u201chigher standard\u201d when it comes to pleading. Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 457 (1989). \u201c \u2018The facts which constitute an alleged fraud must be pleaded with specificity and particularity, including \u201cwhat misrepresentations were made, when they were made, who made the representations and to whom they were made.\u201d [Citation.]\u2019 \u201d Prime Leasing, Inc. v. Kendig, 332 Ill. App. 3d 300, 309 (2002). Failure to prove justifiable reliance is fatal to claims of fraudulent misrepresentation. Schrager v. North Community Bank, 328 Ill. App. 3d 696, 709 (2002).\nThe United States Supreme Court has considered whether a private cause of action exists for stockholders alleging violation of Securities Exchange Commission Rule 10b \u2014 5 (17 C.F.R. \u00a7240.10b \u2014 5 (1973)) where they have neither purchased nor sold any of the shares. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975). The court refused to recognize such a claim. Although Blue Chip Stamps concerns the viability of a \u201cholder claim\u201d for violation of federal law and not for common law fraud on a state claim, the United States Supreme Court\u2019s reasoning for prohibiting such a cause of action is relevant to the present discussion. In Blue Chip Stamps, the court explained:\n\u201cThe manner in which the defendant\u2019s violation caused the plaintiff to fail to act could be as a result of the reading of a prospectus, as respondent claims here, but it could just as easily come as a result of a claimed reading of information contained in the financial pages of a local newspaper. Plaintiff\u2019s proof would not be that he purchased or sold stock, a fact which would be capable of documentary verification in most situations, but instead that he decided not to purchase or sell stock. Plaintiffs entire testimony could be dependent upon uncorroborated oral evidence of many of the crucial elements of his claim, and still be sufficient to go to the jury. The jury would not even have the benefit of weighing the plaintiffs version against the defendant\u2019s version, since the elements to which the plaintiff would testify would be in many cases totally unknown and unknowable to the defendant. The very real risk in permitting those in respondent\u2019s position to sue under Rule 10b \u2014 5 is that the door will be open to recovery of substantial damages on the part of one who offers only his own testimony to prove that he ever consulted a prospectus of the issuer, that he paid any attention to it, or that the representations contained in it damaged him.\u201d (Emphasis in original.) Blue Chip Stamps, 421 U.S. at 746, 44 L. Ed. 2d at 555, 95 S. Ct. at 1930.\nThe only case applying Illinois law in a \u201cholder claim\u201d did not decide whether such a claim was cognizable under Illinois law, but dismissed the complaint for failure to adequately plead a theory of damages or reliance. Amzak Corp. v. Reliant Energy, Inc., No. 03\u20140877, slip op. at 19 n.3 (N.D. Ill. August 19, 2004). That case presented a similar factual situation to the present one. In Amzak, the plaintiffs alleged that the defendants had made false and misleading statements and that those statements artificially inflated Reliant Energy\u2019s stock price during the August 2, 1999, to May 10, 2002, time period inducing the plaintiffs to hold their stock rather than sell it. Amzak Corp., slip op. at 6. The court in Amzak found the plaintiffs\u2019 allegations of reliance insufficiently particular because there was not, for example, \u201ca particular allegation that an act of reliance (such as plaintiffs\u2019 declining to sell their shares via forward sale contracts) was influenced by any alleged misrepresentation.\u201d Amzak Corp., slip op. at 18.\nPlaintiffs do not cite any cases from any jurisdiction in which a court has both recognized a \u201cholder claim\u201d and upheld such a claim as viable past the pleading stage. In one of the few cases recognizing \u201cholder claims,\u201d Small v. Fritz Cos., the sole issue before the California Supreme Court was whether California should recognize a cause of action by persons wrongfully induced to hold stock instead of selling it. Small v. Fritz Cos., 30 Cal. 4th 167, 171, 65 P.3d 1255, 1256, 132 Cal. Rptr. 2d 490, 492 (2003). The court concluded that California law should allow a holder\u2019s action for fraud or negligent misrepresentation. In Small, the court reasoned that California has long acknowledged that if the effect of misrepresentation is to induce forbearance \u2014 to induce persons not to take action \u2014 and those persons are damaged as a result, they have a cause of action for fraud or negligent misrepresentation. However, that court limited the cause of action to stockholders who can make a bona fide showing of actual reliance upon the misrepresentations and remanded with leave to amend the complaint because the plaintiff failed to plead reliance with sufficient specificity to show that he could meet that requirement. Small, 30 Cal. 4th at 171, 65 P.3d at 1257, 132 Cal. Rptr. 2d at 492. The court went on to state that: \u201cIn a holder\u2019s action a plaintiff must allege specific reliance on the defendants\u2019 representations: for example, that if the plaintiff had read a truthful account of the corporation\u2019s financial status the plaintiff would have sold the stock, how many shares the plaintiff would have sold, and when the sale would have taken place.\u201d Small, 30 Cal. 4th at 184, 65 P.3d at 1265, 132 Cal. Rptr. 2d at 503.\nFlaintiffs argue that they adequately pled reliance because they pled that they relied on the statements by KFMG. In support of their argument they rely on Schrager v. North Community Bank, 328 Ill. App. 3d 696 (2002); however, in that case, the issue was whether the plaintiffs reliance was justifiable, not whether the plaintiff had sufficiently pled reliance. Thus, beyond the general statement of the elements of fraudulent misrepresentation, Schrager is of limited instructive value.\nHere, plaintiffs\u2019 fourth amended complaint alleges, in pertinent part, that \u201c[a]s a result of these misrepresentations, plaintiffs and the Class held their Mercury common stock believing Mercury to be in sound financial condition, only to experience dramatic and substantial losses when the truth about Mercury\u2019s poor financial condition was disclosed on January 29, 1997.\u201d Throughout the complaint, plaintiffs make similar statements to the effect of \u201cplaintiffs relied on KFMG\u2019s audit opinion letters.\u201d\nAs in Amzak and Small, we find that plaintiffs have not pled reliance with sufficient specificity and particularity to withstand the motion to dismiss, whether or not this court decides to recognize \u201cholder claims.\u201d The allegation that plaintiffs \u201crelied\u201d without more is simply a conclusory statement that gives no insight into facts that plaintiffs would ever be able to prove supporting that claim. See Anderson v. Vanden Dorpel, 172 Ill. 2d 399, 408 (1996) (in opposing a motion to dismiss under section 2 \u2014 615, a plaintiff cannot rely on mere conclusions of law or fact unsupported by specific factual allegations). As the California Supreme Court put it in Small, \u201c[t]he plaintiff must allege actions, as distinguished from unspoken and unrecorded thoughts and decisions, that would indicate that the plaintiff actually relied on the misrepresentations.\u201d Small, 30 Cal. 4th at 184, 65 P.3d at 265, 132 Cal. Rptr. 2d at 503. Therefore, we conclude that plaintiffs have failed to allege sufficient facts to state a cause of action, and such factual deficiencies may not be cured by liberal construction. See Knox College v. Celotex Corp., 88 Ill. 2d 407, 427 (1981).\nPlaintiffs have also failed to adequately allege the element of damage. With regard to damage, plaintiffs contend that they were only required to plead \u201cdamage,\u201d that is, that they allege facts to show that they suffered a loss as a result of KPMG\u2019s misrepresentations. Plaintiffs argue that they were not required to plead a legal theory for measuring damages, and even if they were required to do so, they did plead a method of calculating damages. The trial court disagreed and dismissed plaintiffs\u2019 complaint because it did not adequately allege facts to show they suffered a loss as a result of KPMG\u2019s misrepresentations.\nThe fourth amended complaint sets forth four methods of calculating damages. First, the \u201cbenefit of the bargain\u201d measure, which entails placing plaintiffs in the same financial condition they would have been in if the misrepresentations had in fact been true. Thus, in the present case this method would measure the value of the stock prior to disclosure ($14,875 per share on January 28, 1997) minus the value of the stock after the disclosure ($2,125 per share on January 31, 1997). Plaintiffs also allege three alternative \u201cout-of-pocket\u201d methods for measuring damages. The tax-basis measure involves determining the initial acquisition price and subtracting the value after the truth was disclosed (i.e., calculating: acquisition price - value after disclosure + proceeds from the sale of the stock). The first \u201cpecuniary loss\u201d measure equals \u201cthe difference between the value of what he has received in the transaction and its purchase price or other value given to it.\u201d The second \u201cpecuniary loss\u201d value \u201cshould be measured either as the value of Mercury stock on the day that each received, read and relied upon the first fraudulent document (per Exhibit A the closing price on February 22, 1994, was $16 per share) or the value of the stock the day prior to the truth being disclosed (the last day of reliance) (per Exhibit A the closing price on January 28,1997, was $14,875 per share) minus the value plaintiffs and the Class ultimately received subsequent to disclosure of the truth.\u201d\nGenerally, a plaintiff is not required to plead a legal theory for calculating damages in the complaint; plaintiffs must allege \u201cdamage,\u201d i.e., a loss, hurt or harm which results from the injury. See Giammanco v. Giammanco, 253 Ill. App. 3d 750, 758 (1993). In the present case, it is necessary to show some method of calculating damage in order for plaintiffs to sufficiently allege a loss since securities fluctuate in value and plaintiffs neither purchased nor sold the stock during the alleged fraud. To find otherwise would permit plaintiffs to plead damage in the same conclusory fashion that they pled reliance (i.e., we suffered a loss). As this court has stated in prior opinions: \u201cDamage is an essential element of fraud. [Citation.] Absolute certainty about the amount of damage is not necessary to justify a recovery if damage is shown, but damages may not be predicated on \u2018mere speculation, hypothesis, conjecture or whim.\u2019 \u201d (Emphasis added.) City of Chicago v. Michigan Beach Housing Cooperative, 297 Ill. App. 3d 317, 323 (1998), quoting In re Application of Busse, 124 Ill. App. 3d 433, 438-39 (1984). Moreover, the evidence must show a basis for computing damages with a \u201cfair degree of probability.\u201d Michigan Beach Housing Cooperative, 297 Ill. App. 3d at 323.\nBeyond the issue of whether plaintiffs were required to plead a measure of damage, the methods of calculating damages that they have pleaded, illustrate that plaintiffs\u2019 loss derives not from the fraud per se, but from the disclosure of the misrepresentations and the subsequent correction in the market price of the stock. As a publicly traded company, Mercury was required to disclose the misstatements in its financial reports when they were discovered. See 17 C.F.R. \u00a7249.308 (2008). Although unfortunate for the holders of Mercury stock, the market provides no guarantee of profit even where a company is financially sound. Plaintiffs\u2019 real complaint is the diminution in value of their shares of stock.\nIn Crocker v. FDIC, 826 F.2d 347 (5th Cir. 1987), the Fifth Circuit Court of Appeals held that the holder plaintiffs had not suffered cognizable damage from holding stock during the period of alleged fraud, only to see the value of their shares decline after the fraud was revealed. That court concluded that, without the fraud, the plaintiffs \u201ccould never have realized the artificially high profit that they claim to have unjustly lost\u201d and the plaintiffs were not entitled to the fraud-inflated value. Crocker, 826 F.2d at 352.\nSimilarly, in Chanoff v. United States Surgical Corp., 857 F. Supp. 1011, 1018 (D. Conn. 1994), the plaintiff shareholders alleged that they refrained from selling the stock because the defendant corporation\u2019s fraudulent failure to disclose certain information inflated the value of the stock. That court found that all of the plaintiffs claims for damages based on the plaintiffs failure to sell or hedge their stock failed because they were \u201ctoo speculative to be actionable.\u201d Chanoff, 857 F. Supp. at 1018. There, as here, the defendants argue \u201cthat the plaintiffs have not alleged [a] cognizable loss because plaintiffs cannot claim the right to profit from what they allege was an unlawfully inflated stock value. In rebuttal, the plaintiffs argue that had the disclosures been timely made, in the early stages *** the market would not have responded [so] drastically as it did when the disclosures were made in 1993, thereby characterizing their loss as the difference in the impact of the disclosures on the market, not lost profits.\u201d Chanoff, 857 F. Supp. at 1018. That court stated that \u201cthis argument is merely a creative costume for the lost profits claim, which courts have clearly rejected.\u201d Chanoff, 857 F. Supp. at 1018.\nSeveral cases from federal courts around the country have dismissed \u201cholder claims\u201d for a lack of damage since the losses derived from the revelation of the truth rather than the fraud itself. See, e.g., In re Enron Corp. Securities, Derivative & \u201cERISA\u201d Litigation, 490 F. Supp. 2d 784, 818 n.43 (S.D. Tex. 2007) (holding that Texas statutes expressly prohibited holder claims); Arnlund v. Deloitte & Touche LLP, 199 F. Supp. 2d 461, 487 (E.D. Va. 2002) (concluding that the claims of the retaining shareholders fail to adequately plead causation between the misrepresentation and the harm since the loss resulted from disclosure and not from fraud); Arent v. Distribution Sciences, Inc., 975 F.2d 1370 (8th Cir. 1992) (holding that the plaintiffs claim failed because any loss was not caused by the failure to disclose or because they were unable to realize the true value of the stock, but because the true value of the stock was zero).\nThe court in Amzak, the Northern District of Illinois case discussed above, also found the plaintiffs\u2019 allegations of damage insufficient to state a claim for fraud. The plaintiffs in Amzak claimed damages because, on May 10 and 13, 2002, in the wake of curative statements disclosing the round trip trades, Reliant Energy\u2019s stock fell from $24.60 on May 9, 2002, to $15.87 on May 14, 2002. The plaintiffs alleged that they would have sold the stock, but did not do so because of the alleged misrepresentations. The plaintiffs claimed damages in two ways: (1) they refrained from selling the shares due to the inflated stock price from the misrepresentation; and (2) they had to make payments to their lenders to prevent them from selling the stock. The Amzak court found both theories flawed because the first theory \u201cessentially complains that they did not sell the stock while its price was artificially (and allegedly fraudulently) inflated,\u201d and the second theory, which alleged out-of-pocket losses based on the price difference between the time of the \u201cmargin default buy-back\u201d and the later sales after the fraud-related collapse, would be nothing but a windfall to the plaintiffs.\nThe methods of calculating damages presented in the instant case likewise present potential for windfall to plaintiffs profiting from fraud-inflated stock prices. Despite members of our supreme court, in a plurality opinion in Price v. Philip Morris, Inc., 219 Ill. 2d 182 (2005), indicating that \u201cbenefit-of-the-bargain\u201d is the appropriate measure of damages in a fraud case, the present instance is not appropriate for that measure of damages because it would permit plaintiffs, who paid fair market value for their stock, to benefit from the fraud. Unlike the situation where a party has been induced to purchase something for an inflated price based on fraudulent statements, here plaintiffs paid fair market value and, thus, are not complaining that they overpaid for the stock, but instead that they suffered a loss when the market price of the stock fell after disclosure of the fraud. Thus, if the \u201cbenefit of the bargain\u201d method is used to calculate damages, it would allow plaintiffs to benefit from the fraudulently inflated price of the stock when they neither purchased nor sold the stock at that price.\nPlaintiffs\u2019 measures for \u201cout-of-pocket\u201d losses are equally unavailing. Plaintiffs\u2019 first alternative bases its measure on plaintiffs\u2019 acquisition price, yet it is undisputed that plaintiffs paid fair market value for the shares when they were acquired; thus, that price has no causal relationship to the alleged misrepresentation. Plaintiffs\u2019 second alternative also uses purchase price to claim damage as the difference between the value received in the transaction and the purchase price; however, as with the first alternative, such a measure would have no causal relationship to the alleged misstatements. Plaintiffs\u2019 final proposed measure of damages, the value of the stock prior to disclosure of the fraud minus the value after disclosure, would give plaintiffs a windfall and allow them to profit from the fraud because, as observed by the Fifth Circuit in Crocker, plaintiffs could not have sold their stock at the artificially high price absent the fraud. Therefore, we find that plaintiffs have failed to adequately plead that they suffered a compensable loss as a result of the alleged fraud and not from its disclosure.\nBased on the foregoing analysis, we conclude that plaintiffs have failed to adequately plead both reliance and damage and therefore fail to state a cause of action upon which relief may be granted. Accordingly, we affirm the trial court\u2019s order dismissing the complaint with prejudice.\nAffirmed.\nSTEELE, J., concurs.\nDavid Baughman replaced Michael Dloogatch as class representative after the trial court granted KPMG\u2019s motion for summary judgment and dismissed Dloogatch.\nIn Cashman v. Coopers & Lybrand, 251 Ill. App. 3d 730 (1993), this court addressed whether a group of shareholders had standing to sue in a private cause of action a corporation\u2019s outside accountant for breach of contract and breach of fiduciary duty where the corporation\u2019s stock lost all its value as a result of accounting errors. Cashman, 251 Ill. App. 3d at 732-33. This court found that the shareholders did not have standing to sue the accountant because they alleged an injury to the corporation that affected them only indirectly. Cashman, 251 Ill. App. 3d at 736.\nSeparate appellant and intervening class member Terra Foundation for the Arts wrote separately in support of the alternative measure of \u201cout-of-pocket\u201d damages {i.e., the difference between the price of the shares the day before the fraud began, $16 per share, and the price of the shares after the fraud was revealed, $2 a share).", "type": "majority", "author": "JUSTICE COLEMAN" }, { "text": "PRESIDING JUSTICE MURPHY,\nconcurring in part and dissenting in part:\nI write separately because I would hold that a \u201cholder\u201d cause of action exists in Illinois. Section 525 of the Restatement (Second) of Torts provides, \u201cOne who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation.\u201d (Emphasis added.) Restatement (Second) of Torts \u00a7525, at 55 (1977). See also Restatement (Second) of Torts \u00a7531, at 66 (1977) (\u201cOne who makes a fraudulent misrepresentation is subject to liability to the persons or class of persons whom he intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentation, for pecuniary loss suffered by them through their justifiable reliance in the type of transaction in which he intends or has reason to expect their conduct to be influenced\u201d); 37 Am. Jur. 2d Fraud & Deceit \u00a7243 (1969) (\u201cA person is entitled to damages resulting from inaction when an untrue statement is made with the intent to induce that person to refrain from acting, so long as it can be demonstrated that the false statement produced the inaction\u201d).\nIllinois cases have also found claims of fraud based on a scheme designed to cause a person to refrain from acting. In Schnidt v. Henehan, 140 Ill. App. 3d 798 (1986), the plaintiffs alleged that the defendant, their attorney, falsely told them that he had arranged for necessary mortgage financing, that they relied on his statement and did not attempt to arrange financing on their own, and that the defendant told them they should not seek financing on their own or they would \u201cscrew up\u201d the deal. The court concluded that the plaintiffs stated a cause of action for fraud, as his statement was made for the purpose of inducing the plaintiffs to \u201crefrain from acting.\u201d Schnidt, 140 Ill. App. 3d at 804. See also Chatham Surgicore, Ltd. v. Health Care Service Corp., 356 Ill. App. 3d 795, 804 (2005); Wright v. Chicago Title Insurance Co., 196 Ill. App. 3d 920, 926 (1990).\nThe principle that inducing another to refrain from action is sufficient to state a cause of action for fraud should apply equally to cases where a plaintiff is induced to refrain from selling stock. In Small, the California Supreme Court applied the long-recognized \u201cprinciple that induced forbearance can be the basis for tort liability\u201d to misrepresentations involving corporate stock. Small, 30 Cal. 4th at 174, 65 P.3d at 1259, 132 Cal. Rptr. 2d at 495. See also Rogers v. Cisco Systems, Inc., 268 F. Supp. 2d 1305, 1313-14 (N.D. Fla. 2003); Gutman v. Howard Savings Bank, 748 F. Supp. 254, 266-67 (D.N.J. 1990). \u201cLies [that] deceive and injure do not become innocent merely because the deceived continue to do something rather than begin to do something else. Inducement is the substance of reliance; the form of reliance \u2014 action or inaction \u2014 is not critical to the actionability of fraud.\u201d Gutman, 748 F. Supp. at 264.\nElaintiffs must, of course, properly plead reliance, and I agree with the majority that plaintiffs failed to do so. As Small reasoned:\n\u201cIn a holder\u2019s action a plaintiff must allege specific reliance on the defendants\u2019 representations: for example, that if the plaintiff had read a truthful account of the corporation\u2019s financial status the plaintiff would have sold the stock, how many shares the plaintiff would have sold, and when the sale would have taken place. The plaintiff must allege actions, as distinguished from unspoken and unrecorded thoughts and decisions, that would indicate that the plaintiff actually relied on the misrepresentations.\u201d Small, 30 Cal. 4th at 184, 65 P.3d at 1265, 132 Cal. Rptr. 2d at 503.\nThe requirement in a holder action that a plaintiff allege \u201cactions, as distinguished from unspoken and unrecorded thoughts and decisions\u201d (Small, 30 Cal. 4th at 184, 65 P.3d at 1265, 132 Cal. Rptr. 2d at 503), allows the court to separate \u201cplaintiffs who actually and justifiably relied upon the misrepresentations from the general investing public, who, though they did not so rely, suffered the loss due to the decline in share value.\u201d Rogers, 268 F. Supp. 2d at 1314 n.18.\nHowever, I disagree with the majority that plaintiffs have failed to adequately plead the element of damage. Elaintiffs alleged that they retained their stocks based on defendant\u2019s misrepresentations and suffered a loss when the true state of affairs was revealed and the stock price crashed. Elaintiffs have alleged a \u201c \u2018loss, hurt, or harm [that] results from the injury.\u2019 \u201d Giammanco v. Giammanco, 253 Ill. App. 3d 750, 758 (1993), quoting Ballatine\u2019s Law Dictionary 303 (3d ed. 1969).\nAs for the alleged intractability of calculating damages, the benefit-of-the-bargain and out-of-pocket measures of damages are not \u201cin all cases a perfect litmus test for the existence of compensable damage.\u201d Giammanco, 253 Ill. App. 3d at 763. Plaintiffs should be allowed to put several methods before the trier of fact or present expert testimony.\n\u201c[0]nce a plaintiff holder can show that a portion of the loss is attributable to fraud, difficulty in proving the amount of the damages will not bar a cause of action. Proof will, of course, often require expert evidence. *** Experts may disagree \u2014 they often do \u2014 but that is no reason to reject a holder\u2019s cause of action.\u201d Small, 30 Cal. 4th at 191, 65 P.3d at 1270, 132 Cal. Rptr. 2d at 508 (Kennard, J., concurring).\nAs the court noted in Giammanco, \u201cCourts administering justice should not be outpaced by creative wrongdoers.\u201d Giammanco, 253 Ill. App. 3d at 763.\nFinally, I would remand this case to the trial court to give plaintiffs another opportunity to plead reliance with sufficient particularity, as outlined by the majority.", "type": "concurring-in-part-and-dissenting-in-part", "author": "PRESIDING JUSTICE MURPHY," } ], "attorneys": [ "Bellows & Bellows, EC., of Chicago (Joel J. Bellows and Christopher L. Gallinari, of counsel), for appellant Terra Foundation for the Arts.", "William J. Harte, Ltd. (William J. Harte and Dana M. Pesha, of counsel), Lawrence Walner & Associates, Ltd. (Lawrence Walner and Michael S. Hilicki, of counsel), Weltman Law Firm (Stewart M. Weltman, of counsel), and Futterman, Howard, Watkins, Wylie & Ashley Chtrd. (Charles Watkins, of counsel), all of Chicago, and Prickett, Jones & Elliot, of Wilmington, Delaware (Ronald A. Brown, of counsel), for other appellants.", "Sidley Austin LLfj of Chicago (Linton J. Childs, Hille R. Sheppard, and Ian M. Ross, of counsel), for appellees." ], "corrections": "", "head_matter": "MICHAEL DLOOGATCH et al., on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants, v. JOHN N. BRINCAT et al., Defendants-Appellees (Terra Foundation for the Arts, Intervening Class Member and Separate Appellant).\nFirst District (3rd Division)\nNos. 1\u201408\u20140168, 1\u201408\u20140281 cons.\nOpinion filed December 16, 2009.\nMURPHY, EJ., concurring in part and dissenting in part.\nBellows & Bellows, EC., of Chicago (Joel J. Bellows and Christopher L. Gallinari, of counsel), for appellant Terra Foundation for the Arts.\nWilliam J. Harte, Ltd. (William J. Harte and Dana M. Pesha, of counsel), Lawrence Walner & Associates, Ltd. (Lawrence Walner and Michael S. Hilicki, of counsel), Weltman Law Firm (Stewart M. Weltman, of counsel), and Futterman, Howard, Watkins, Wylie & Ashley Chtrd. (Charles Watkins, of counsel), all of Chicago, and Prickett, Jones & Elliot, of Wilmington, Delaware (Ronald A. Brown, of counsel), for other appellants.\nSidley Austin LLfj of Chicago (Linton J. Childs, Hille R. Sheppard, and Ian M. Ross, of counsel), for appellees." }, "file_name": "0842-01", "first_page_order": 858, "last_page_order": 872 }