Chicago Team Secures Significant Appellate Win in Promissory Fraud Matter

Chicago, Ill. (February 13, 2023) - Chicago Partner Josh M. Kantrow and Associate Jason W. Jochum recently secured a significant appellate victory on behalf of a company and its principals when the Illinois Appellate Court, Second District, affirmed the dismissal of the plaintiff’s promissory fraud claim – a cause of action unique to Illinois and notoriously difficult to have dismissed prior to discovery.

In this case, the plaintiff alleged that Lewis Brisbois’ clients – a company and its principals – engaged in a “scheme to defraud” when they requested numerous extensions of payment terms and made additional purchase orders, despite knowing that they would be unable to pay for the purchases because their company was insolvent and likely to be sold. The plaintiff sought six figures in compensatory damages, punitive damages, and attorneys’ fees. Lewis Brisbois obtained dismissal of the complaint in the trial court on several bases, including that the agreement pursuant to which the orders were placed required arbitration of any claims, and the plaintiff’s allegations of “representations” made by the company’s principals could not support a promissory fraud claim. The plaintiff subsequently appealed.

On appeal, the appellate court acknowledged that Illinois law was “unsettled” regarding the sufficiency of allegations required to plead a “scheme to defraud” to support a promissory fraud claim as opposed to a breach of contract claim. Nevertheless, following Mr. Kantrow’s oral argument, the court notably concluded that the plaintiff’s allegations of the “representations” made by the company’s principals for an extension of payment terms were not “true” or “false,” nor was placing additional orders part of a “scheme.” Thus, the court held that there were no representations to support a promissory fraud claim. The court also determined that although the plaintiff styled its claims as “fraud,” the parties’ contract required arbitration of any claim arising in connection with the agreement or purchase orders, regardless of the “moniker” that the plaintiff attached to the claim. Accordingly, the appellate court affirmed the lower court’s dismissal of the plaintiff’s claim.

Mr. Kantrow is co-chair of Lewis Brisbois' Illinois BIPA Practice. He regularly handles complex business litigation matters, including class action litigation, throughout the United States. Mr. Kantrow also has deep experience defending technology litigation matters, including cases involving BIPA, cyber-security, data privacy/network security, and software developers.

Mr. Jochum is a member of Lewis Brisbois’ Insurance Coverage and Bad Faith Litigation Practices. A litigator and counselor, he focuses his practice on defending individuals and businesses in professional liability, coverage, and general litigation matters.