Illinois Appellate Court Reverses Trial Judge Who Denied Filing a Second Amended Complaint

The 1^st District Appellate Court has reversed in part, vacated in part and remanded a decision by a Cook County judge in a case involving the use of trust money and investments.

Arie Zweig was the trustee of the Arie Zweig Self Declaration of Trust dated June 28, 1990. He used $2 million from the trust for an equity investment in a partnership supporting an ambulatory surgical center called Bedford Med. Bedford Med was operated by Bedford Med LLC. He said he was induced to invest by Nadar Bozorgi, Mandan Garahati and Guita Bozorgi Griffiths, acting as the Bozorgi Limited Partnership.

Zweig claimed that the Bozorgi defendants represented to him that the value of the Bedford Med operation was appraised at $21 million and that permanent financing had been secured. Zweig also claimed that the Bozorgi defendants maintained that they invested more than $5 million in the project, that the real estate had been already leased or was about to be finalized and that the investment would be used as equity and for working capital, generating an annual profit of 15-20%.

None of this was true. The real estate had only a construction loan, already nearing maturity, and required additional critical financing. In addition, Zweig alleged that his $2 million was withdrawn from the company and used for their personal benefit.

Finally, Zweig charged that Griffiths, the daughter of Bozorgi and Garahati, fraudulently induced the loan guarantee, provided “certain transaction documents” and undertook actions in breach of her fiduciary duty to Bedford Med.

Zweig filed suit against Bedford Med and the Bozorgi defendants. The trial court found that any lawsuit against Bedford must proceed by way of arbitration. Zweig amended his complaint removing Bedford as the defendant.

The defendants then moved to dismiss the amended complaint, arguing that the claims were insufficiently pleaded and that they did not conceal their transfer of the funds from Zweig, that they were immune from liability under the Illinois Limited Liability Company Act and that Zweig lacked standing to bring claims against them.

Zweig sought to file a second amended complaint alleging additional facts to support the fraud and breach of fiduciary duty claims. The Circuit Court judge denied Zweig permission to file a second amended complaint, finding that the motion to dismiss “purportedly includes some other affirmative matter” that would defeat Zweig’s claims. Further, Zweig chose not to show how the amended complaint would defeat their motion to dismiss. Zweig appealed.

He argued on appeal that the trial court erred in refusing to allow a second amended complaint. The appellate court agreed. The appellate court noted that when a plaintiff represents that a proposed amendment would correct purported defects identified by the defense, they are “routinely allowed to file an amended complaint.” In addition, the Bozorgi defendants’ motion to dismiss relied on “a mix of legal and factual questions,” and the “factual questions cannot be considered at this stage of the proceedings.”

The appeals panel found that permitting another amended complaint would not prejudice the defendants, that the motion was timely and that Zweig acted as promptly as possible to remedy his complaint based on the defendants’ replies.

Accordingly, the appellate court found that the trial judge had been in error to deny Zweig permission to file a second amended complaint, vacated the dismissal of the first complaint with prejudice and sent the case back for further proceedings.

Arie Zweig Self Declaration of Trust, et al. v. The Bozorgi Limited Partnership, et al., 2016 IL App (1^st) 152628-U.

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