author: PRESIDING JUSTICE JIGANTI

text:
    JAMES R. ADLER et al., Plaintiffs-Appellants, v. WILLIAM BLAIR AND COMPANY et al., Defendants-Appellees.
    First District (4th Division)
    No. 1 — 91—3366
    Opinion filed March 31, 1993.

      Holstein, Mack & Klein, of Chicago (Jewel N. Klein, David L. Poindexter, and Aron D. Robinson, of counsel), for appellants.
    Skadden, Arps, Slate, Meagher & Flom, of Chicago (Timothy A. Nelsen, Christina M. Tchen, and Donna L. McDevitt, of counsel), for appellees.
   PRESIDING JUSTICE JIGANTI

delivered the opinion of the court:

The plaintiffs in this action are two putative classes and several individuals who invested in a real estate syndication known as William Blair Realty Services Partners III (Partners III), a limited partnership. Following the loss of their investments, the plaintiffs filed an amended complaint alleging common law and statutory fraud, breach of fiduciary duty and misrepresentation against the defendants, William Blair & Company, Plumwood Corporation and William Blair Realty Services Limited. The defendants moved to dismiss the complaint for failure to state a cause of action and on the grounds that certain of the claims were barred by the applicable limitations periods. (Ill. Rev. Stat. 1989, ch. 110, pars. 2 — 615, 2 — 619, respectively.) The trial court dismissed the plaintiffs’ complaint with prejudice and denied leave to amend.

The issues on appeal are whether the plaintiffs’ complaint stated a cause of action for fraud, misrepresentation and breach of fiduciary duty and whether the trial court abused its discretion in denying leave to amend. Our disposition of this cause makes it unnecessary for us to consider the statute of limitations issues.

A brief explanation of how the parties relate to one another is necessary to an understanding of the issues. The defendant William Blair & Company (Blair) is a general partnership engaged in the securities brokerage business. One of the partners of Blair, Judson C. Ball, was also the president of the defendant Plumwood Corporation (Plumwood). Blair and Plumwood created William Blair Realty Services (WBRS), a limited partnership, for the purpose of creating real estate syndications. Plumwood was the general partner of WBRS and Blair was a limited partner. Under the operating procedures of WBRS, Blair was to “sponsor” all real estate syndications offered by WBRS, and Plumwood was to create and sell the syndications subject to the approval of the WBRS advisory committee. The advisory committee consisted of several individuals who were officers of or held management positions in Blair.

One of the syndications created by WBRS was a limited partnership known as William Blair Realty Services Partners III (Partners III). The private placement memorandum (PPM) given to persons interested in investing in Partners III identified WBRS as the general partner of Partners III. It identified Plumwood as the general partner of WBRS and Blair as the limited partner of WBRS. Blair was not identified as either a general or limited partner of Partners III. However, Blair did act as a selling agent for the Partners III offering.

Limited partnership interests in Partners III were sold as a nonpublic, unregistered offering of securities. Such offerings are exempt from the registration requirements of the securities laws provided they are made only to sophisticated investors. In the case of Partners III, the offering was limited to accredited investors as defined under Federal securities laws and to no more than 35 nonaccredited investors who met certain minimum investment eligibility requirements. To meet the eligibility requirements, a nonaccredited investor had to certify that he had a net worth of at least $250,000, that an investment in Partners III would represent no more than 20% of his joint net worth, that he had sufficient knowledge and experience in business and financial matters to evaluate the risks of an investment in Partners III and that he could withstand the loss of the entire investment. The minimum investment in Partners III was $50,000.

Prior to making an investment in Partners III, prospective investors were given a lengthy private placement memorandum (PPM). Several provisions of the PPM are significant to the issues on appeal, making it necessary to describe the document in some detail. The inside cover page contains a statement in bold print that “THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.” The PPM identifies WBRS as the general partner and states that WBRS would answer all inquiries as to the proposed operation of Partners III, the experience of the general partner and any other matters relating to the offering. It further stated:

“The General Partner will afford prospective investors and offeree representatives the opportunity to obtain any additional information *** necessary to verify the accuracy of any information set forth in this Memorandum or the attached Exhibits.”

The PPM states that Partners III was organized for the purpose of “locating, acquiring, developing, leasing, operating and selling commercial real estate.” The principal investment objectives are described as follows:

“1. [Pjreserve and protect the Partnership’s capital;
2. [A]chieve long-term capital gains;
3. [Ojbtain partially ‘tax-sheltered’ distributions of cash from operations; and
4. [G]enerate reasonable Partnership tax losses from straight-line real estate depreciation to offset or ‘shelter’ a Unit holder’s taxable income from other sources.”

The investors are warned in bold print that “THERE CAN BE NO ASSURANCE THAT THESE OBJECTIVES WILL BE ATTAINED.” The PPM also states that Partners III was not structured primarily to produce tax benefits for the investors and that WBRS estimates that investors would receive only modest tax losses resulting from the partnership operation. Several pages of the PPM are devoted to a discussion of the tax consequences of an investment in Partners III, and investors are “strongly urged to consult their tax advisors with specific reference to their own tax situation” before investing. Also, the PPM specifically cautions prospective investors that Congress was considering tax law changes which, if adopted, could significantly reduce or eliminate the tax benefits of an investment in Partners III.

The PPM discloses that, as general partner of Partners III, WBRS would have sole authority and responsibility for the management and control of the partnership’s operations. Significantly, the PPM explicitly states that “[t]he General Partner is required to make a contribution of $100 to the capital of the Partnership.” The general partner is not personally liable for the return of all or any portion of the capital or profits of any partner. It stated that any such return of capital or profits would be made solely out of the assets of Partners III.

In a section entitled “Conflicts of Interest,” the PPM states that Partners III is subject to various conflicts of interest arising out of its relationship with WBRS. Among the conflicts described is the receipt by WBRS of certain benefits and fees, including property management fees arising out of the acquisition of property by Partners III. The PPM further states that “[b]ecause [Partners III] was organized and will be operated by the General Partner, these conflicts will not be resolved through arm’s-length negotiations, but through the exercise of the General Partner’s judgment.”

Before purchasing an interest in Partners III, prospective investors were required to submit a signed and notarized subscription agreement, representing among other things:

“1. I have received and read the [PPM] and am hereby applying for the purchase of Units solely in reliance upon the information contained in the [PPM] and not in reliance upon any other information.
3. I or my Offeree Representative have [sic] had an opportunity to ask questions of and receive answers from the General Partner, or a person or persons acting on its behalf, concerning the térms and conditions of this investment.”

The Partners III offering closed on December 31, 1985, with 272 units having been sold for a total limited partner investment of $13.6 million. Of the total investment, $1.7 million was invested by partners and employees of Blair.

In 1985, Partners III purchased Holcomb Place Office Building (Holcomb Place) in Atlanta, Georgia. In September of 1986, Congress passed the Tax Reform Act of 1986, which provided that a taxpayer could no longer deduct losses from “passive” activities in which the taxpayer did not materially participate against income derived from active businesses. On October 28, 1986, Partners III purchased the Lincoln Center in Tampa, Florida. The acquisition was financed in part with an $11 million short-term loan from the First National Bank of Chicago, and the purchase agreement included management fees for WBRS.

In March of 1988, WBRS sent a letter to the limited investors in Partners III stating that although the partnership was well capitalized for the following two years, market risks required conservative management of the partnership resources and a cash distribution would not be made for 1987. On September 27, 1988, WBRS advised investors that debt service on the bank loan and continuing rental concessions were expected to cause negative cash flow from Lincoln Center for as long as two years and that a cash distribution for 1988 was not expected. The letter further advised investors that Plumwood and Blair had agreed that WBRS would not engage in any further real estate syndications. The letter stated that Plumwood would continue to perform the managing general partner function and that Blair “would continue to provide its counsel and support.”

On June 26, 1989, Plumwood, the general partner of WBRS, wrote to investors telling them that at Blair’s suggestion a management company had been hired to manage the day-to-day operations of the partnership properties which WBRS had been managing until then. In late 1989, the bank loan was in default and one of the partnership properties was threatened with foreclosure. On November 6, 1989, Blair loaned $500,000 to Partners III in an attempt to prevent the foreclosure. In a letter to investors on December 13, 1989, Blair stated that it was under no legal obligation to make the loan, but that it did so in an attempt to give WBRS additional time to work out a solution. The letter then stated that Blair had "put Plumwood on notice that Blair will not make additional loans.” In letters dated December 21, 1989, and March 23, 1990, Blair again informed investors that it made the loan to Partners III not out of legal obligation, but rather to be supportive of the limited partners, many of whom were partners or employees of Blair. Blair also stated that it had reviewed reports prepared by certain real estate firms which concluded that additional capital infusions would not increase the value of Lincoln Center or result in positive equity for the limited partners. In April 1990, the bank foreclosed on Holcomb Place.

The plaintiffs filed their initial complaint on November 16, 1990, suing on behalf of themselves individually and on behalf of two putative classes. Class I was alleged to include all limited partners in Partners III excluding the defendants and any general partners of Blair. Class II was alleged to be a subset of class I consisting of those investors who had borrowed funds to purchase their interests in Partners III from lending institutions to which they were referred by Blair. The plaintiffs’ 10-count amended complaint alleged statutory and common law fraud, breach of fiduciary duty, breach of implied contract, negligent misrepresentation and State securities regulation violations. On appeal, the plaintiffs challenged the trial court’s ruling only insofar as it dismissed the statutory and common law fraud, breach of fiduciary duty and misrepresentation claims.

Essentially, the plaintiffs alleged that their decision to invest in Partners III was based upon oral misrepresentations by the defendants which differed from the written representations contained in the PPM. The complaint alleges that during the solicitation of the limited partnership interests in Partners III, “various brokers employed by, or agents of, the Defendants represented to the Class Plaintiffs and each of the individual Plaintiffs that BLAIR would stand behind the limited partnership in that BLAIR would be the capital source of funds necessary to properly fund the real estate holdings of PARTNERS III should the need arise.” The complaint further alleges that the defendants provided potential investors in Partners III with a brochure which stated that “[b]acked by the financial security of WILLIAM BLAIR & COMPANY, WILLIAM BLAIR REALTY SERVICES can truly work with the investor in mind.”

The complaint also alleged that Blair had a reputation in the financial community of financial acumen and success, and that the defendants designed the sale of shares in Partners III to make it appear that Partners III was a product “created by BLAIR, financially backed by BLAIR, and supported by BLAIR’s reputation, credibility and financial strength.” According to the complaint, the defendants accomplished this by using the Blair name, office, address, telephone number, cable, telex and typeface in connection with the sale of shares in Partners III. The plaintiffs were allegedly told that Blair was described as a limited partner in WBRS by the PPM “for tax and other regulatory reasons. ’ ’

With respect to the breach of fiduciary duty count, the complaint alleged essentially that the defendants breached their fiduciary duty to the plaintiffs included in class I by purchasing the Lincoln Center property áfter the enactment of a new tax law which eliminated the right of a taxpayer to deduct losses from “passive” activities in which the taxpayer did not materially participate against income derived from active businesses. The complaint alleged that the acquisition of Lincoln Center increased the economic risk to the plaintiffs but presented little risk to the defendants “because [the] Defendants earned management fees for operating Lincoln Center.”

With respect to the misrepresentation claim, the complaint alleges that the. members of class II were advised “by various BLAIR partners and/or by broker-dealers or sales representatives *** that any sums borrowed [from lending institutions to which the plaintiffs were referred by Blair] for the purpose of purchasing shares in PARTNERS III would not have to be repaid” until the partnership properties were sold. The complaint further alleged that contrary to those representations, the loans “are, or will be, due and owing regardless of whether any buildingfs] are ever sold.”

The complaint alleged that at the date of its filing, the shares in Partners III were worthless.

The defendants’ motion to dismiss pursuant to section 2 — 615 of the Code of Civil Procedure (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 615) for failure to state a cause of action alleged that the plaintiffs’ allegations of fraud were not sufficiently specific, that the complaint failed to set out any misrepresentations on which the plaintiffs could have justifiably relied and that there were no facts to support a claim for breach of fiduciary duty. The trial court granted the defendants’ motion. The court also granted a motion by the defendants under section 2 — 619, ruling that several of the plaintiffs’ claims were barred by the applicable statutes of limitations. The plaintiffs subsequently filed a motion for leave to file an amended complaint, for clarification of the dismissal order and for reconsideration of that order. The court denied the plaintiffs’ motion, and the plaintiffs have appealed.

The plaintiffs first contend that the trial court erred in dismissing their common law fraud claim for failure to state a cause of action. The defendants respond that the plaintiffs did not allege misrepresentations upon which they could have justifiably relied.

The elements of the tort of fraudulent misrepresentation are:

“ ‘(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 [justifiable] reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance.’ ” (Gerill Corp. v. Jack L. Hargrove Builders, Inc. (1989), 128 Ill. 2d 179, 193, 538 N.E.2d 530, 536, quoting Soules v. General Motors Corp. (1980), 79 Ill 2d 282, 286, 402 N.E.2d 599, 601.)

A party pleading fraud must allege facts sufficient to establish that its reliance on the alleged misrepresentations was justified, that is, that it had a right to rely upon the statement. (Charles Hester Enterprises, Inc. v. Illinois Founders Insurance Co. (1986), 114 Ill. 2d 278, 288, 499 N.E.2d 1319.) In determining whether reliance was justifiable, all of the facts which the plaintiff knew, as well as those facts the plaintiff could have learned through the exercise of ordinary prudence, are taken into account. (Central States Joint Board v. Continental Assurance Co. (1983), 117 Ill. App. 3d 600, 606-07, 453 N.E.2d 932.) “A person may not enter into a transaction with his eyes closed to available information and then charge that he has been deceived by another.” Central States, 117 Ill. App. 3d at 606, 453 N.E.2d at 936.

In the case at bar, the plaintiffs were given a lengthy and detailed PPM which disclosed that WBRS was the general partner of Partners III and that the general partner was required to make a capital contribution of only $100. The PPM further disclosed that Plumwood was the general partner of WBRS and that Blair was the limited partner of WBRS. Blair was not mentioned as a partner, either general or limited, in Partners III. The PPM cautioned prospective investors that investing in Partners III involved a high degree of risk. As an unregistered offering of securities, interests in Partners III were offered only to accredited investors and a small number of nonaccredited investors who were required to meet certain eligibility requirements. Before being allowed to invest, prospective investors including the plaintiffs were required to sign a subscription agreement warranting that they had read the PPM and made the decision to invest relying solely on the information contained in the PPM and not in reliance on any other information. The plaintiffs nevertheless alleged in their complaint that “various brokers employed by, or agents of, the Defendants” represented to them that Blair would financially back Partners III and that Blair was identified as the limited partner of WBRS in the PPM only for tax and regulatory purposes.

We are not persuaded by the plaintiffs’ argument that they could have justifiably relied upon the alleged oral misrepresentations in light of the written information contained in the PPM. The plaintiffs acknowledge that they signed a subscription agreement warranting that they relied only on the information contained in the PPM. However, they argue that this factor is not entitled to much weight because another section of the subscription agreement invited the plaintiffs to rely upon oral and written information outside the four comers of the PPM. The section to which the plaintiffs refer states, “I or my Offeree Representative have [sic] had an opportunity to ask questions of and receive answers from the General Partner, or a person or persons acting in its behalf, concerning the terms and conditions of this investment.” The PPM itself states that the general partner would answer questions and make available any information “necessary to verify the accuracy of any information set forth in this Memorandum or the attached Exhibits.” The plaintiffs claim that when they responded to the invitation and asked questions, they were told that Blair would financially back Partners III and that it was described in the PPM only as a limited partner of WBRS solely for tax and regulatory reasons. These oral representations were directly contrary to what was stated in the PPM. We cannot accept the plaintiffs’ argument that the provisions in the subscription agreement and PPM inviting them to ask questions concerning the investment and to verify the accuracy of the information given can reasonably be interpreted as authorizing the plaintiffs to rely on representations totally at odds with the written statements in the PPM. To accept the plaintiffs’ contention is to hold the written agreement for; naught. Similarly unpersuasive are the plaintiffs’ claims that Partners III “looked” like a Blair product because it used the same typeface on its letterhead and shared office space with Blair. In our view, the complaint does not state facts from which it could be concluded that there was justifiable reliance on the part of the plaintiffs. The court was therefore correct in dismissing the common law fraud count.

The plaintiffs also claim that Blair’s “pre- and post-investment activities” were those of a full partner and argued that by engaging in those activities it assumed the role of a general partner. The plaintiffs do not state what consequences would flow from treating Blair as a general partner other than to assert that they had a right to “rely upon continuing conduct representing Blair’s intent to financially back Partners III.” Although it is unclear, the plaintiffs appear to argue that if Blair is determined to have assumed the role of a general partner, it would have had a duty to make additional capital contributions to Partners III. This argument ignores the clear wording of the PPM, which states not only that WBRS was the general partner of Partners III, but also that the general partner was required to make a capital contribution to the partnership of only $100. We are not persuaded by the plaintiffs’ argument on this point.

The plaintiffs also allege causes of action under two statutes, the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (Ill. Rev. Stat. 1989, ch. 1211/2, par. 262) and the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1989, ch. 1211/2, par. 137.12).

The Consumer Fraud Act states:

“[D]eceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact *** are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby.” (Ill. Rev. Stat. 1989, ch. 1211/2 , par. 262.)

It has been held that the Act provides greater protection than the common law action for fraud, and that a plaintiff suing under the Act need not establish all of the elements of common law fraud. (First Security Bank v. Bachleda (1987), 165 Ill. App. 3d 725, 731, 520 N.E.2d 660.) However, it has been held that private persons seeking relief under the Act must establish the element of justifiable reliance. (Elipas Enterprises, Inc. v. Silverstein (1993), 243 Ill. App. 3d 230); see also IK Corp. v. One Financial Place Partnership (1990), 200 Ill. App. 3d 802, 558 N.E.2d 161.) Our finding that the plaintiffs’ allegations were insufficient to establish justifiable reliance for the purpose of proving common law fraud leads us to conclude that their cause of action under the Consumer Fraud Act was similarly defective.

Section 12 of the Illinois Securities Act provides that it is a violation of the Act:

“F. To engage in any transaction, practice or course of business in connection with the sale or purchase [of] securities which works or tends to work a fraud or deceit upon the purchaser or seller thereof;
G. To obtain money or property through the sale of securities by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” (Ill. Rev. Stat. 1989, ch. 1211/2, pars. 137.12(F), (G).)

The provisions of sections 12(F) and (G) of the Illinois Securities Act are patterned after sections 17(a)(2) and (a)(3) of the Federal Securities Act (15 U.S.C. §§77q(a)(2), (a)(3) (1988)). (Foster v. Alex (1991), 213 Ill. App. 3d 1001, 1005, 572 N.E.2d 1242.) Illinois courts therefore look to Federal case law to interpret these provisions. Foster, 213 Ill. App. 3d 1001, 572 N.E.2d 1242.

In Acme Propane, Inc. v. Tenexco, Inc. (7th Cir. 1988), 844 F.2d 1317, buyers of nonregistered securities brought a securities fraud claim based on alleged oral misrepresentations that contradicted the written information provided to them by the sellers. The court stated that only material representations permit recovery under the securities laws and that in order to be material, a statement must “significantly alter the total mix of information available to the investor.” (Acme, 844 F.2d at 1322.) The court went on to state:

“An investor who knew the truth is hard put to say that the inconsistent oral statement significantly altered the total mix of information. *** [T]he securities laws are designed to encourage the complete and careful written presentation of material information. A seller who fully discloses all material information in writing should be secure in the knowledge that it has done what the law requires. Just as in the law of contracts a written declaration informing one party of an important fact dominates a contrary oral declaration, so in the law of securities a written disclosure trumps an inconsistent oral statement. Otherwise even the most careful seller is at risk, for it is easy to claim: ‘Despite what the written documents say, one of your agents told me something else.’ If such a claim of oral inconsistency were enough, sellers’ risk would be greatly enlarged. All buyers would have to pay a risk premium to cover this extra cost of doing business.” (Acme, 844 F.2d at 1322.)

(Accord Associates in Adolescent Psychiatry v. Home Life Insurance Co. (7th Cir. 1991), 941 F.2d 561, 571, cert, denied (1992), 502 U.S. 1099, 117 L. Ed. 2d 426, 112 S. Ct. 1182 (“Documents that unambiguously cover a point control over remembered (or misremembered, or invented) oral statements”).) We accordingly do not believe that the plaintiffs have alleged a cause of action based on a violation of the securities laws.

The plaintiffs next contend that the trial court erred in dismissing its breach of fiduciary duty claims. The plaintiffs primarily argue that the court should not have dismissed the claim as to WBRS, the general partner of Partners III, and Plumwood, the general partner of WBRS. The gist of this claim is the plaintiffs’ allegation that the defendants breached a fiduciary duty by acquiring the Lincoln Center property despite an unfavorable change in the tax laws. The plaintiffs maintain that WBRS received an economic benefit from the purchase in the form of management fees.

As stated earlier, the PPM states that “[t]he primary investment objective of the Partnership will be to locate and acquire suitable real estate properties and obtain capital appreciation through an increase in the value of the Properties.” One of the “investment objectives” was to “generate reasonable Partnership tax losses from straight-line real estate depreciation to offset or ‘shelter’ a Unit holder’s taxable income from other sources.” The PPM warned investors, however, that “[t]he Partnership has not been structured primarily to produce tax benefits for the Investor Limited Partners, and the General Partner estimates *** only modest tax losses resulting from Partnership operations.” Investors were further cautioned that Congress was considering changes in the tax laws that, if enacted, could significantly reduce or eliminate the tax benefits of an investment in the partnership. Investors were accordingly strongly urged to consult their own tax advisers about the possible effects of tax law changes before investing. The defendants maintain that the acquisition of the Lincoln Center property was in full conformity with the primary investment objective of the partnership and could therefore not have formed the basis of a claim for breach of fiduciary duty.

The plaintiffs cite Labovitz v. Dolan (1989), 189 Ill. App. 3d 403, 545 N.E.2d 304, to support their argument that even an act permitted under a partnership agreement may constitute a breach of fiduciary duty where the general partner benefits at the expense of the limited partners. The private placement memorandum in Labovitz stated that the partnership’s intended policy was to make cash distributions to partners each year in an amount approximating the taxable income for the year. It also stated that the general partner would have the sole discretion to determine the amount of cash distributions to be made. The plaintiff limited partners alleged that even though the partnership had sufficient cash to fund the plaintiffs’ tax obligations, the defendants unreasonably refused to make cash distributions while making loans to other entities related to the defendants. As a result, the plaintiffs were forced to sell their interests to an affiliate controlled by the defendant for two-thirds of their book value in order to obtain cash to pay their tax liabilities. In holding that these allegations were sufficient to state a cause of action for breach of fiduciary-duty, the court stated that the gravamen of the complaint was that the plaintiffs had taken the risk that the business would succeed but had not taken the risk that it would succeed so well that the general partner would squeeze them out and take the profits for itself.

In the case at bar, the plaintiffs were fully informed that the purpose of the partnership was to acquire real estate, that it was not primarily structured to generate tax losses and that unfavorable tax law changes could reduce or eliminate the tax benefits. The PPM also discussed possible conflicts of interest based on the general partners’ management of the partnership properties and how those conflicts would be resolved. Essentially, the plaintiffs premised their breach of fiduciary duty claim on the defendants’ failure to abandon the primary purpose of the partnership in the face of tax law changes. We do not believe that the defendants had a duty to do so and accordingly find that the fiduciary duty claim was properly dismissed.

The plaintiffs also appeal the dismissal of their claim for misrepresentation based on alleged representations to members of Class II that funds borrowed from lending institutions to which the plaintiffs were referred by Blair would not have to be repaid until the partnership properties were sold. In their motion to dismiss, the defendants stated that the allegations concerning the misrepresentation count did not state any actionable representation on which the plaintiffs could have reasonably relied and did not allege that the purported misrepresentations proximately caused the plaintiffs’ losses. In their brief on appeal, the plaintiffs make no argument as to how the trial court erred in dismissing the misrepresentation claim. We accordingly find the issue waived for purposes of this appeal. Thrall Car Manufacturing Co. v. Lindquist (1986), 145 Ill. App. 3d 712, 719, 495 N.E.2d 1132.

Finally, the plaintiffs contend that the court erred in denying them leave to amend their complaint. The plaintiffs tendered an amended complaint to the trial court along with their motion to reconsider. According to the plaintiffs, the proposed amended complaint offered more specific factual information to support their allegations that they had no knowledge or reason to suspect fraud until they received communications directly from Blair in December of 1989. The amended complaint did not allege any new facts to establish that the plaintiffs’ reliance on the alleged misrepresentations was reasonable.

The denial of a motion to file an amended complaint will be affirmed unless the plaintiff can demonstrate an abuse of discretion. (B.C. v. J.C. Penney Co. (1990), 205 Ill. App. 3d 5, 16, 562 N.E.2d 533.) One of the factors to be considered in determining whether an abuse of discretion occurred is whether the proposed amendment would cure the defective pleading. In our view, the trial court properly concluded that the proposed amendment would not have cured the defective pleading. Therefore, no abuse of discretion occurred.

Our disposition of this cause makes it unnecessary for us to consider whether certain of the plaintiffs’ claims were barred by the applicable statute of limitations.

Accordingly, the judgment of the circuit court is affirmed.

Affirmed.

JOHNSON and CAHILL, JJ., concur.


source: Caselaw Access Project

author: JUSTICE BUCKLEY

license: Public Domain

text:
    NICHOLAS NIKOLOPULOS, Plaintiff-Appellant, v. STEVEN BALOURDOS et al., Defendants-Appellees.
    First District (1st Division)
    No. 1 — 92—0475
    Opinion filed April 12, 1993.

      Flamm & Teibloom, Ltd., of Chicago (Matthew A. Flamm, of counsel), for appellant.
    Jenner & Block, of Chicago (Kenneth A. Kroot, of counsel), for appellees.
   JUSTICE BUCKLEY

delivered the opinion of the court:

This case arises from a declaratory judgment action filed by plaintiff Nicholas Nikolopulos, a prospective purchaser of a condominium unit, against defendants Steven Balourdos, J.B. Realty, Inc., and Frederick Dempsey. Plaintiff sought a judgment declaring the real estate sales contract between him and the seller, defendant Balourdos, terminated due to breaches of the contract by defendant Balourdos or, in the alternative, declaring the contract unenforceable due to defendant Balourdos’ failing to timely reveal that title to the condominium unit was held in a land trust. Plaintiff also sought return of his earnest money. The circuit court entered judgment for defendants and declared that plaintiff forfeited the earnest money. We reverse and remand this cause with instructions.

Plaintiff entered into a real estate contract on March 12, 1990, for the purchase of a condominium unit located at 535 North Michigan Avenue. The original contract was signed by plaintiff, but never signed by the seller named in it, “J.B. Realty/Owner of Record.” Shortly thereafter, plaintiff received a letter from defendant Dempsey, defendant Balourdos’ attorney, amending the contract to state inter alia that “Steven Balourdos has been substituted as the Owner of Record for J.B. Realty.” Richard Orlikoff, plaintiff’s attorney, also wrote a letter amending the contract, in particular, paragraph 2. Incorporating these amendments, paragraph 2 of the contract states in pertinent part:

“Steven Balourdos/Owner of Record (Seller) agrees to sell the real estate *** and to convey or cause to be conveyed to Purchaser *** subject only to: (b) terms, provisions, covenants, and conditions of the Declaration of Condominium or amendments, if any, thereto; (c) and utility easement, including any easements established by or implied from the Declaration of Condominium or amendments thereto, if any ***.”

Plaintiff deposited a total of $13,100 as. earnest money. This earnest money is held by defendant Dempsey’s law firm in an interest-bearing account at the First American Bank of Northeast Illinois.

In the first week of June 1990, Orlikoff received a copy of a title commitment showing title to the condominium unit to be held in a land trust. Upon receipt of the commitment, Orlikoff called defendant Dempsey and informed him that plaintiff required an individual warranty deed for closing to which defendant Dempsey agreed.' Additionally, Orlikoff requested copies of the easements shown in the commitment and the financial statements of the condominium association. He also expressed concern about other title exceptions shown on the commitment. Defendant Dempsey assured him that those exceptions would be cleared from the commitment. Later in June, Orlikoff received some of the requested documents, but no copies of the easements were included and only the financial statements for 1987 and 1988 were received.

On July 2, 1990, defendant Dempsey, plaintiff, Orlikoff and Arthur Balourdos, defendant Balourdos’ nephew, met at Chicago Title & Trust to close the sale. Defendant Dempsey and Arthur Balourdos presented an individual warranty deed signed by defendant Balourdos as the seller. The warranty deed, however, could not transfer title because the property was held in a land trust. Neither the closing officer nor plaintiff was given any information as to who the beneficiary of the trust was or who had power to direct the trustee. Orlikoff reiterated that only an individual warranty deed would be acceptable.

The exceptions on the title commitment were also discussed at the attempted closing. Orlikoff requested that exception 13, concerning the declaration of easements, covenants and restrictions made by American National Bank & Trust Company of Chicago, be waived. The title examiner refused to waive exception 13 or any of the other exceptions. The title examiner explained that the only exception which could be waived was the one referring to the City of Chicago lawsuit, which had been dismissed, but that the exceptions relating to the easements could not be waived. At this time, defendant Dempsey gave Orlikoff a copy of the 1989 financial statement for the condominium association. The closing was postponed until July 9, 1990. Orlikoff agreed to the extension, explaining that he wanted to examine the exceptions to title on the commitment, other documents referred to in the commitment, and the condominium association’s 1989 financial statement. Plaintiff never agreed to take title subject to any exceptions and did not expressly waive any provision of the contract.

After conferring with plaintiff, Orlikoff called defendant Dempsey and the closing officer to cancel the July 9 appointment, but was unable to reach them. The following day he spoke with defendant Dempsey and informed him that the contract was terminated. Defendant Dempsey responded that defendant Balourdos was going through with the closing on July 9. On that date, defendant Dempsey and Arthur Balourdos met with the closing officer and presented documents which the officer believed would transfer title; however, none of the exceptions on the commitment were ever waived.

Plaintiff demanded return of the earnest money based on his termination of the contract. Defendants refused. As a result, plaintiff filed the declaratory judgment action in which the circuit court entered judgment for defendants and declared the earnest money forfeited. Now, plaintiff appeals.

The granting or denying of declaratory relief rests within the sound discretion of the circuit court. (Marlow v. American Suzuki Motor Corp. (1991), 222 Ill. App. 3d 722, 584 N.E.2d 345.) On appeal, the complaining party must show affirmatively an abuse of discretion. Charleston National Bank v. Muller (1974), 16 Ill. App. 3d 380, 306 N.E.2d 358.

Plaintiff first argues that the circuit court erred in entering judgment for defendants because defendant Balourdos was required to deliver title in the condition and manner set forth in the real estate contract and he was unable to accomplish this. After Orlikoff amended the contract, it required, in pertinent part, that the condominium unit be only subject to the terms, provisions, covenants and conditions of the declaration of condominium and all amendments and utility easements established by or implied from the declaration of condominium or amendments thereto. The commitment, however, listed several easements, some contained in the declaration of easements, covenants and restrictions, as exceptions. Several of the easements benefited the owners of the commercial properties located in the same building as the condominium unit. The commitment also indicated other exceptions, including a $400,000 mortgage, an IRS revenue lien and a suit filed by the City of Chicago.

At the attempted closing, the title officer stated that only one exception could be waived. The record is devoid of any evidence or testimony that any of the title exceptions relating to the easements contained in the declaration of easements, covenants and restrictions were ever waived. The title exceptions concerned easements directly affecting the use of and the cost of owning the property. Some of these easements indicated that the condominium association undertakes a duty to maintain facilities located on the residential property for the benefit of the commercial property, including mandates that the residents of the building share the expenses of operating the building with the commercial retail stores located on the lower levels of the building. Furthermore, the easements confer upon the commercial property owners rights of ingress and egress to the residential portions of the building.

The terms of the real estate contract provide plaintiff a right to refuse to take title subject to easements, other than utility easements or those implied from the declaration of condominium. We agree that since the complained-of easements are contained in a document completely separate from the declaration of condominium, are between different parties and were entered into at a different time than the declaration of condominium, plaintiff had a right to terminate the contract and properly did so.

Relying on Larson v. Johnson (1953), 1 Ill. App. 2d 36, 116 N.E.2d 187, defendants contend that plaintiff’s above argument must fail because he violated the doctrine of “mend the hold,” which according to defendants states that once a party who terminates a contract has, either before or during the course of litigation, cited specific grounds justifying the termination, he cannot assert additional or other grounds to justify the termination later in the litigation. Defendants, however, take liberty with the Larson opinion. Larson actually states that the mend-the-hold doctrine precludes a party from “changing] his ground, and put[ting] his conduct upon another and a different consideration.” (Larson, 1 Ill. App. 2d at 40, 116 N.E.2d at 189.) Defendants argue that plaintiff referred at trial to additional grounds not contained in the complaint, such as “certain covenants in the Declaration of Easements, Covenants and Restrictions (as distinct from the existence of easements as alleged in plaintiff’s complaint)” (emphasis added) and “other conditions and restrictions of record including encroachments, a $400,000 mortgage, an IRS revenue lien, and a suit filed by the City of Chicago,” thereby violating the mend-the-hold doctrine.

Defendants waived the mend-the-hold argument. Defendants only objected at trial to the admissibility of Orlikoff’s and defendant Dempsey’s letters amending the real estate contract. The circuit court allowed the letters admitted into evidence and further allowed plaintiff to amend his complaint to include allegations that the letters were made part of the contract. After reviewing the record, it is clear that during trial, all the above-mentioned restrictions, including covenants burdening the residential property which are set forth in the declaration of easements, covenants and restrictions, were placed in issue, argued by both plaintiff and defendants and considered by the trial court. When defendants failed to object at trial to a variance between plaintiff’s pleadings and proof, any such defect was waived. See Petrik v. Monarch Printing Corp. (1986), 143 Ill. App. 3d 1, 493 N.E.2d 616.

Plaintiff’s second contention is that the agreement to extend the closing date did not serve as a waiver or an agreement to change any of the provisions of the real estate contract. We agree. Pursuant to the real estate sales contract, plaintiff retained his right to review the condominium association’s 1989 financial statement.

Defendants argue that plaintiff cannot terminate the contract on the basis of information contained in the condominium association’s 1989 financial statement because such a right is not expressly provided by the Condominium Property Act (the Act) (Ill. Rev. Stat. 1989, ch. 30, par. 322.1). To give a prospective purchaser a right to review financial statements would be meaningless if the purchaser is left without a remedy when previously undisclosed financial conditions reveal a substantial additional financial burden on the owners of condominium units or reveal previously undisclosed defects in the unit or building. Therefore, plaintiff argues that we should imply a private remedy from section 22.1 of the Act.

In determining whether a statute creates an implied private remedy, we must consider: (1) whether the plaintiff is within the class of persons the statute is designed to protect; (2) whether implying the cause of action is consistent with the underlying purpose of the act; (3) whether the plaintiff’s injury is one the statute was designed to prevent; and (4) whether implying a cause of action is necessary to effectuate the purpose of the act. (Board of Education v. A, C & S, Inc. (1989), 131 Ill. 2d 428, 470, 546 N.E.2d 580, 599.) First, section 22.1 of the Act was clearly designed to protect prospective purchasers of condominium units; therefore, plaintiff falls within the intended protected class. Second, implying that plaintiff may terminate the contract, if unsatisfactory information is disclosed by the documents, is consistent with assuring that a prospective purchaser is fully informed and satisfied before he buys a condominium unit. Third, the statute was designed to prevent prospective purchasers from buying a unit without being fully informed and satisfied with the financial stability of the condominium as well as the management, rules and regulations which affect the unit he is seeking to purchase. Fourth, implying that if the information contained in the documents is unsatisfactory, a prospective purchaser may terminate the contract and demand return of his earnest money effectuates the purpose of the Act.

Plaintiff was entitled to review the condominium association’s financial statements. We find that implied in this right to review is the right to terminate the contract within a reasonable time after being furnished information revealing previously undisclosed material expenses. The 1989 financial statement revealed that the windows of the condominium building had to be replaced at a cost of $2,750,000 and that the work would be performed over a period of five to seven years. The cost of replacing the windows directly impacts upon plaintiff’s financial burden if he were to purchase the unit. Accordingly, we find that this previously undisclosed condition allows plaintiff to terminate the contract and entitles him to the return of his earnest money plus interest accrued thereon.

Next, plaintiff argues that the circuit court erred in finding for defendants because a seller who is neither the trustee nor the beneficiary of a land trust cannot enforce a real estate contract against a buyer who was not informed that the property was in trust. Prior to receiving the title commitment in the first week of June 1990, plaintiff had no knowledge that the property was held in a trust. After receiving this commitment, Orlikoff called defendant Dempsey, pointed out that the land was in a trust, asked defendant Dempsey if he wanted to amend the contract and asked whether plaintiff would receive an individual warranty deed. Defendant Dempsey stated that he did not want to amend the contract and that an individual warranty deed would be given at closing. Defendants did present plaintiff with an individual warranty deed at closing; however, the title officer would not accept it because the land was in a trust. Additionally, neither the title company nor plaintiff was informed that defendant Balourdos was the beneficiary of the land trust until after the underlying declaratory action was filed. Thus, defendant Balourdos’ actions as seller indicated that he was ignoring the fact that the land was in a trust.

“[I]f a beneficiary of a land trust deals with the property as if no trust existed and contracts as owner to sell the property, the contract is void as being beyond the beneficiary’s power to act.” (Jacobs v. Carroll (1977), 46 Ill. App. 3d 74, 79, 360 N.E.2d 136, 139.) Defendant Balourdos contracted as owner of record to sell the property. Neither plaintiff nor Orlikoff knew that the land was in trust until they received the title commitment and, furthermore, did not discover that defendant Balourdos was the beneficiary until this lawsuit. We, therefore, find that since defendant Balourdos did not properly exercise the power he possessed under the trust agreement, because he did not direct the trustee to convey the title and did not contract as the sole beneficiary to sell the property, but rather contracted as owner of the property, defendant Balourdos went beyond his power. (See Madigan v. Buehr (1970), 125 Ill. App. 2d 8, 260 N.E.2d 431.) Accordingly, we hold that this contract, executed by one of the beneficiaries without disclosure of the existence of the land trust, was unenforceable against plaintiff. See Madigan v. Buehr (1970), 125 Ill. App. 2d 8, 260 N.E.2d 431.

Defendants argue that the language of the real estate contract, specifically, “cause to convey,” put plaintiff on notice that the title was held in trust and, therefore, such “notice” makes the contract enforceable. Defendants also argue that the “/” between “Steven Balourdos” and “owner of record” in the contract means “or,” thereby allowing defendant Balourdos to “convey” the unit to plaintiff without disclosing the fact that the property is held in a land trust. This is directly refuted by defendant Dempsey’s letter. That letter amending the real estate contract explicitly stated that “Steven Balourdos has been substituted as the owner of record ***.” (Emphasis added.) The “/” was not intended to mean and does not mean “or.”

Finally, plaintiff argues that the circuit court erred in finding for defendants because a seller who cannot deliver the title for which the purchaser contracted cannot enforce a contract and obtain forfeiture of earnest money deposited by the buyer under the doctrine of anticipatory breach. After termination of a real estate contract is declared, subsequent performance will not relieve the offending party. (First National Bank v. Chrysler Realty Corp. (1988), 168 Ill. App. 3d 784, 522 N.E.2d 1298.) A “refusal to perform does not amount to an anticipatory breach where it is due to a promisor’s good faith belief that a condition of his duty to perform has not happened.” (First National Bank & Trust Co. v. First National Bank (1988), 178 Ill. App. 3d 180, 186, 533 N.E.2d 8, 13.) The burden of establishing the ability to perform rests with the party seeking to enforce the contract. (Farwell Construction Co. v. Ticktin (1980), 84 Ill. App. 3d 791, 405 N.E.2d 1051.) The record indicates that defendants did not have the ability to convey the property according to the contract, because they could not convey title clear of the easements contained in the declaration of easements, covenants and restrictions which were exceptions on the commitment. Accordingly, the contract was properly terminated by plaintiff, and no anticipatory breach occurred.

We hold that plaintiff has affirmatively shown that the circuit court abused its discretion. Plaintiff is entitled to the return of his earnest money plus the interest accrued thereon.

For the foregoing reasons, we reverse the judgment of the circuit court of Cook County and remand this cause with instructions that plaintiff’s earnest money plus interest accrued thereon be returned.

Reversed and remanded with instructions.

MANNING, P.J., and O’CONNOR, J., concur.


author: JUSTICE McCULLOUGH

text:
    LUCILLE LOKEY, Adm’r and Adm’r to Collect of the Estate of Gladys Van Buskirk, Plaintiff-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee.
    Fourth District
    No. 4 — 92—0939
    Argued April 21, 1993.
    Opinion filed May 27, 1993.
    Alvin R. Becker and Timothy M. Kelly (argued), both of Beermann, Swerdlove, Woloshin, Barezky, Becker, Genin & London, of Chicago, for appellant.
    Robert S. White (argued) and Robert W. Neirynck, both of Costigan & Wollrab, P.C., of Bloomington, for appellee.
   JUSTICE McCULLOUGH

delivered the opinion of the court:

Plaintiff Lucille Lokey, administrator and administrator to collect of the estate of Gladys Van Buskirk, appeals from the order of the circuit court of McLean County dismissing plaintiff’s complaint for declaratory judgment against defendant State Farm Mutual Automobile Insurance Company. The only issue raised in this appeal is whether the trial court misapplied a Virginia statute requiring notice to an insurer that a claim for uninsured motorist coverage would be made by service of a copy of the process in an action against the owner or operator of the uninsured vehicle so as to enable the insurer to plead, and otherwise take part in, the action in the name of the owner or operator of the uninsured vehicle, or in its own name, where the statute expressly stated that it did not prevent the owner or operator of the uninsured vehicle from employing counsel of his own choosing and taking any action in his own interest in connection with the proceeding. We affirm.

On July 8, 1984, Van Buskirk was a passenger in an automobile driven by David H. Kilgore, the son of the owner David R. Kilgore. Both Kilgores were residents of Virginia, the vehicle was licensed in Virginia, and it was insured under a policy issued by defendant in Virginia. On July 8, 1984, the automobile driven by David H. Kilgore and in which Van Buskirk was a passenger was involved in a collision with a vehicle owned and operated by Earl Bowling, a resident of Kentucky and an uninsured motorist. The collision occurred in Kentucky. As a result of the accident, Van Buskirk was injured and eventually died after 12 days in the hospital.

On December 14, 1984, plaintiff’s attorneys notified defendant, in writing, of a claim on behalf of Van Buskirk. Correspondence and telephone calls between plaintiff and defendant continued. In these communications, defendant relied on a dispute over whether the Kentucky statute of limitations had expired in refusing to meet plaintiff’s demand for payment. On or about January 18, 1989, a judgment was entered in favor of plaintiff against Bowling in the amount of $100,000, in the United States District Court for the Eastern District of Kentucky (Lokey v. Bowling (E.D. Ken. Jan. 18, 1989), No. 86 — 168 (unpublished decision)). On March 19, 1991, the present action was filed in Cook County as No. 91 — CH—2491; that court transferred the case to McLean County on December 18, 1991, and it was redocketed as case No. 92 — CH—8. Service pursuant to the Virginia Code, in the Federal District Court in Lokey v. Bowling, was accomplished on October 21, 1992, over three years after the entry of the final judgment against Earl Bowling, the uninsured motorist.

The subject insurance policy recites that payment under the uninsured motorist provision will be made in accordance with section 38.1 — 381 of the Code of Virginia (Virginia Code) (now Va. Code Ann. §38.2 — 2206 (1990)). Section 38.1 — 381(e)(l) of the Virginia Code (now Va. Code Ann. §38.2 — 2206(F) (1990)) provides:

“If any action is instituted against the owner or operator of an uninsured or underinsured motor vehicle by any insured intending to rely on the uninsured or underinsured coverage provision or endorsement of this policy under which the insured is making a claim, then the insured shall serve a copy of the process upon this insurer in the manner prescribed by law, as though the insurer were a party defendant. The provisions of §8.01 — 288 shall not be applicable to the service of process required in this subsection. The insurer shall then have the right to file pleadings and take other action allowable by law in the name of the owner or operator of the uninsured or underinsured motor vehicle or in its own name. Nothing in this subsection shall prevent the owner or operator of the uninsured motor vehicle from employing counsel of his own choice and taking any action in his own interest in connection with the proceeding.” (Emphasis added.)

Based on plaintiff’s noncompliance with the statute, the instant declaratory judgment action was dismissed.

Defendant’s motion to dismiss in this case was made pursuant to section 2 — 619(a)(9) of the Code of Civil Procedure (Code) (Ill. Rev. Stat. 1991, ch. 110, par. 2-619(a)(9) (now 735 ILCS 5/2-619(a)(9) (West 1992))). Section 2 — 619(a)(9) of the Code allows for the filing of a motion for involuntary dismissal based on affirmative matter avoiding the legal effect of or defeating the plaintiff’s claim. If the ground for dismissal is not evident from the face of the pleading, affidavits may be submitted in support of the motion. Ill. Rev. Stat. 1991, ch. 110, par. 2 — 619(a) (now 735 ILCS 5/2-619(a) (West 1992)).

The test for determining the propriety of granting the motion to dismiss is whether it appears no set of facts may be proved so as to entitle plaintiff to recover from defendant. (Toys “R” Us, Inc. v. Adelman (1991), 215 Ill. App. 3d 561, 564, 574 N.E.2d 1328, 1330; Michel v. Gard (1989), 181 Ill. App. 3d 630, 635-36, 536 N.E.2d 1375, 1379.) In the case at bar, the facts are not controverted. As stated heretofore, it is clear defendant was not served as a party defendant in the Federal case against Bowling prior to the entry of judgment. Service by a deputy sheriff was made on October 21,1992.

Plaintiff’s first contention is that the case of Glens Falls Insurance Co. v. Stephenson (1988), 235 Va. 420, 367 S.E.2d 722, is directly on point and directs that there is no time limit prescribed for service in section 38.1 — 381(e)(l) of the Virginia Code. It is plaintiff’s argument that the trial court in this case improperly construed the statute as having such a time limit. Plaintiff contends that the requirement that such service be before judgment — at a time when defendant could have had an opportunity to actually participate in the proceeding against the uninsured motorist — is not specifically set forth in the statute.

The specific question considered in Glens Falls was whether the statute required service to be accomplished within the limitations period for filing an action against a tortfeasor. The Virginia Supreme Court decided that question as follows:

“Describing itself as ‘the functional equivalent of a party defendant,’ Glens Falls concludes that it is entitled to all the benefits accorded to a party defendant, including the right to plead the statute of limitations. The language of the statute upon which Glens Falls relies does not support its argument. The phrase ‘in the manner prescribed by law’ modifies the words ‘shall serve,’ indicating a clear legislative intent to limit the requirement to the manner of service of process, specifically described elsewhere in the Code. Nowhere in the language of Code §38.1 — 381 do we find any mention of a time period within which service is to be made. If the legislature had intended to create a limitation of time for such service, we think it would have done so in explicit language.
Moreover, we note that in all other statutes of limitations in Virginia the limitation[s] period is tolled when the action is filed or ‘commenced,’ Code §8.01 — 228, and the plaintiff normally may have process served at any time within a year thereafter. Rule 3:3. Under Glens Falls’ proposed ‘statute of limitations,’ the action would not only have to be commenced, but process would also have to be served upon Glens Falls in order to toll the running of the limitation[s] period. Yet a plaintiff in a personal injury case may not discover that the tortfeasor is uninsured or underinsured (as in this case) until after the tortfeasor has been served with process, which may occur at a time after the statute of limitations has run. Clearly, the legislature did not intend such a result.
Accordingly, we find no merit in Glens Falls’ contention that the statute of limitations prevents Stephenson from claiming the benefits of his underinsured coverage.” (Emphasis in original.) Glens Falls, 235 Va. at 422-23, 367 S.E.2d at 724.

Based on this analysis, it appears that Glens Falls does not control the question in the case at bar. It is plaintiff’s contention that she served defendant in conformance with the Federal rules (Fed. Rules Civ. P. 4(c)(2)(C)(ii), 4(d)(3)), and in light of the rule providing intervention as of right and permissive intervention in Federal court (Fed. R. Civ. R 24), which allows an insurer to intervene in a suit if the dispute might impair rights of the insurer (see Dimond v. District of Columbia (D.C. Cir. 1986), 792 F.2d 179, 191-94; Fidelity Bankers Life Insurance Co. v. Wedco, Inc. (D. Nev. 1984), 102 F.R.D. 41, 44-45), the defendant’s rights were adequately protected under the Virginia statute.

Defendant does not challenge plaintiff’s interpretation of these cases, nor does defendant contest the propriety of the method of service which plaintiff finally used to serve defendant. Defendant’s contentions are that (1) service of process, not notice otherwise, is required by section 38.1 — 381 of the Virginia Code; (2) service was not accomplished on defendant until after the plaintiff’s judgment against Bowling had become final; and (3) serving an insurer after the judgment against the uninsured motorist becomes final defeats the purpose of the Virginia statute.

The Virginia cases cited by defendant make it clear that service of process, not some other form of notice, is required to satisfy the Virginia statute. In State Farm Mutual Automobile Insurance Co. v. Duncan (1962), 203 Va. 440, 445-46, 125 S.E.2d 154, 158, the Virginia Supreme Court determined that the presence of a notice provision in the policy did not waive the insurer’s rights under the statute because the notice provision had a different purpose than did the statute. The court also stated that the insurer had no obligation to advise a plaintiff that the insurer would be relying on the statute. (State Farm, 203 Va. at 446, 125 S.E.2d at 159.) With regard to the purpose of the statute, the court in State Farm emphasized that the statute allows the insurance company to participate in the litigation “in its own name.” (State Farm, 203 Va. at 445, 125 S.E.2d at 158.) Another court has characterized the statute as placing the insurer in an adversarial position with the insured when uninsured motorist’s benefits are involved. Grant v. Maryland Casualty Insurance Co. (D.C. Cir. 1969), 295 F. Supp. 174,175.

The court in Duncan relied heavily on the earlier case of Creteau v. Phoenix Assurance Co. (1961), 202 Va. 641, 119 S.E.2d 336, wherein the insurance company was not only notified, but actually had its legal representative at trial, although the representative took no part in the trial. In Creteau, the Virginia Supreme Court noted that no process was served on the insurer because the clerk of the court refused to do it, thinking it to be improper. However, the insured’s argument in Creteau was simply that the insurer had waived the requirement of the statute. The Virginia Supreme Court disagreed. After discussing the concept of waiver of a known right, the court reasoned as follows:

“In Crockett v. Reynolds, 76 W. Va. 763, 766, 86 S.E. 881, it was said:
<*** rpjjg presence 0f an unserved defendant, though accompanied by attorney, merely as a spectator, when the case is called, is not a submission to the jurisdiction of the court, unless in some way he participates in the proceedings therein. Fulton v. Ramsey, 67 W. Va. 321, 68 S.E. 381.’
We find under the facts alleged in the amended motion for judgment that Phoenix did not expressly, either in writing or parol, or by inconsistent conduct waive the service of process upon it in plaintiff’s action against Rawls.” Creteau, 202 Va. at 644,119 S.E.2d at 339.

The cited case which is most factually similar to the case at bar is Roenke v. Virginia Farm Bureau Mutual Insurance Co. (1968), 209 Va. 128, 161 S.E.2d 704. Roenke, a Virginia resident, was injured in a collision between his vehicle and a vehicle driven by William Guy Dempsey, a resident of Tennessee who was an uninsured motorist. The collision occurred in Tennessee. Roenke employed Tennessee counsel who notified the insurer and sued Dempsey on Roenke’s behalf in the United States District Court for the Eastern District of Tennessee. A copy of the complaint was forwarded to and received by the insurer. After a first trial ended in a hung jury, Roenke’s counsel became aware of the requirement of serving the insured and inquired of the company if it intended to stand on that condition. If so, he requested to be advised and would serve the company. The company made no written response to this inquiry although it did make a nominal offer to settle. Following a second trial, Roenke obtained a $7,500 judgment against Dempsey, and the insurer denied liability because of the failure to comply with the statutory notice provision. Roenke then sued the insurance company in Virginia. The Virginia Supreme Court, interpreting section 38.1 — 381(e)(1) of the Virginia Code, stated in Roenke:

“The provisions of this section are clear and unequivocal, and the statute is mandatory. It says in plain language that any insured who intends to rely on the uninsured motorist coverage shall, if action is instituted against the owner or operator of an uninsured motor vehicle, serve a copy of the process upon the insurance company issuing the policy in the manner prescribed by law as though such insurance company were a party defendant.
The notice required to be given an insurance company can be given in only one way, and that is by the service of a copy of the process in the manner prescribed by law. Even service of a copy of the process does not make the insurance company a defendant to the cause of action. The statute simply prescribes a precise and formal method of notification of the commencement or filing of a legal action to a party that is, or may be, interested in the action. Thereafter the insurance company is given the right to file pleadings, and to take such other action allowable by law in the name of the owner or operator of the uninsured motor vehicle or in its own name.
The General Assembly could have provided other and different methods of notification, but it did not do so. By this statute it required formal service on the company, the same as if it were a defendant, and provided that a copy of the process must be served before the company could be held liable under the Uninsured Motorist Act. It used language which is exacting and established such service as a condition precedent to entitlement to the benefits of the statute.” (Emphasis in original.) Roenke, 209 Va. at 130-31, 161 S.E.2d at 706.

Noting that Roenke was not misled or lulled into inaction by anything that the insurer did or failed to do, the Roenke court affirmed the lower court’s judgment for the insurer.

Based on Roenke, the result in the case at bar must be the same. Plaintiff did not specifically argue waiver here. Nor does plaintiff argue that the enforcement of the Virginia statute violates Illinois public policy in some way. Plaintiff also does not dispute that the law of Virginia applies to the case at bar. Allen v. State Farm Mutual Automobile Insurance Co. (1991), 214 Ill. App. 3d 729, 738-39, 574 N.E.2d 55, 60-61.

Therefore, the judgment of the circuit court of McLean County is affirmed.

Affirmed.

STEIGMANN, P.J., and COOK, J., concur.


author: JUSTICE KNECHT

text:
    THE DEPARTMENT OF CENTRAL MANAGEMENT SERVICES et al., Plaintiffs-Appellees, v. AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES (AFSCME), AFL-CIO, Defendant-Appellant.
    Fourth District
    No. 4 — 92—0628
    Argued February 17, 1993.
    Opinion filed May 20, 1993.

      Gilbert Feldman (argued), of Cornfield & Feldman, of Chicago, for appellant.
    Roland W. Burris, Attorney General, of Springfield (Rosalyn B. Kaplan, Solicitor General, and Jerald S. Post, Assistant Attorney General (argued), of Chicago, of counsel), for appellees.
   JUSTICE KNECHT

delivered the opinion of the court:

Mary Pat King (grievant) was discharged from her position as a child protective investigator for the Illinois Department of Children and Family Services (DCFS). This termination was challenged by defendant American Federation of State, County and Municipal Employees (AFSCME), the exclusive bargaining representative for State child protective investigators. The parties eventually submitted the grievance to arbitration, where an arbitrator determined grievant should be reinstated. (Illinois Department of Central Management Services v. American Federation of State, County & Municipal Employees (Dec. 7, 1991), Arb. No. 1778 (62/63-0231-91(204997)) (Benn, arb.) (hereinafter arbitrator’s award).) The circuit court of Sangamon County vacated this award, and AFSCME appeals. We affirm.

Facts

The facts of this case, as determined by the arbitrator, are not in dispute. Grievant was hired by DCFS as a child protective investigator on September 23, 1988. A child protective investigator receives reports of abuse and investigates them to determine whether they are substantiated or unfounded. The present grievance centers around grievant’s handling of a particular report of child abuse.

On or about February 16, 1990, grievant received a report of an alleged child abuse by a mother of her daughter. The report was initiated by the estranged father of the child. Grievant interviewed the child and the mother but did not interview the brother of the allegedly abused child, an apparent witness to the abuse. She fabricated an investigative report dated February 26, 1990, however, in which she claimed to have interviewed the brother at his school. The arbitrator’s award quotes the following language from grievant’s report regarding her interview with the brother:

“ T got marks on my face [and] so did Jenn. We were making cupcakes in kitchen at Bill’s [and] Jenn was taking all the sprinkles. I grabbed them [and] we started fighting. Mom yelled at us then she grabbed my arm [and] her finger hit Jenn. Jenn started crying.
On the way home Jenn would not give me the book I wanted so I grabbed it [and] mom turned around and tried to push me away from Jenn. Her hand hit Jenn’s face [and] my face but I didn’t cry. Jenn did. Mom put us in our room for fighting and spanked us too. On the butt.
We visit Dad and Saturday [and] Sunday at Grandpa’s house.’ ” Arbitrator’s award, at 5.

Based on grievant’s investigation of the case, she believed the case of abuse was unfounded and recommended the case not be written up, i.e., “not indicated.” After speaking with the father of the allegedly abused child and receiving a tape recording and some pictures of the little girl, grievant’s supervisor, Kathryn Bischoff, informed grievant the case should be “indicated” and instructed her to write the case up. The interview allegedly done by grievant with the brother had no impact on Bischoff’s decision to reverse grievant’s recommendation. Rather, she relied on the tape recording and pictures of the child. Ardis Cook, the DCFS child protection manager for the Rockford office, reviewed the case and, after speaking with the father, recommended the case be “indicated.” The case was “indicated” at that point, and grievant’s recommendation was rejected.

The mother later wrote a letter to DCFS requesting the indication of abuse be overturned. One of the reasons cited for the case being overturned was grievant had not interviewed the brother regarding the incident. Following receipt of the letter, Bischoff met with grievant and asked her if she had interviewed the brother. She also showed her a letter from the brother’s teacher, indicating no one from DCFS had ever taken the child from the teacher’s room to be interviewed. Grievant told Bischoff she could not remember any of the circumstances surrounding the interview, but after reviewing a calendar, later explained she did remember what happened and had interviewed the brother at his school on February 26,1990.

At a predisciplinary meeting, Bischoff asserted she had spoken with the brother’s principal and teacher, and both stated grievant had not visited the school to interview the brother on the day she stated she had. Because Bischoff believed grievant falsified her report, she recommended grievant be discharged. Grievant was thereafter discharged effective May 29, 1991. Discharge was cited as the appropriate level of discipline because the falsification rendered her unsuitable for continuation in her current position, pursuant to personnel rules, section 302.700 of title 80 of the Illinois Administrative Code (Code) (80 Ill. Adm. Code §302.700 (1991)). Grievant had not been disciplined prior to this incident.

The mother ultimately appealed the local determination of an indication of abuse. On appeal, Cook, who had previously reviewed the case and recommended it be indicated, reversed that determination and held the allegations were unfounded. This ruling was due to a discrepancy over the length of the mother’s nails and, in part, the fact the brother had not been interviewed.

At all times relevant to the case, grievant was covered by a collective-bargaining agreement which was effective July 1, 1989, to June 30, 1991. Article V of this agreement provided for arbitration of certain disputes arising under the agreement. Article IX, section 1, provided:

“The Employer agrees with the tenets of progressive and corrective discipline. Disciplinary action or measures shall include only the following:
(a) Oral reprimand;
(b) Written reprimand;
(c) Suspension (notice to be given in writing); and
(d) Discharge (notice to be given in writing).
Disciplinary action may be imposed upon an employee only for just cause.”

Pursuant to the collective-bargaining agreement, AFSCME filed a grievance challenging the discharge, alleging grievant was dismissed from her position without just cause as required under article IX of the collective-bargaining agreement. When the parties were unable to settle the grievance, it was submitted to arbitration.

Arbitrator Edwin H. Benn found the grievant did not interview the brother of the allegedly abused child and the investigative report had been falsified. He nevertheless held just cause did not exist for the discharge. In concluding just cause did not exist, the arbitrator examined the following series of inquiries:

“(1) As a matter of contract, does the high degree of public scrutiny that DCFS and its employees face require discharge in this case?
(2) If not, does that high degree of public scrutiny require discharge in terms of the application of the requirements of progressive discipline?
(3) If not, under the requirements of progressive discipline, did Grievant’s misconduct justify the bypassing of lesser forms of progressive discipline?
(4) If not, has the Employer demonstrated that progressive discipline will not work? and
(5) If not, what measure of discipline is appropriate?”

In answering the first question, the arbitrator maintained DCFS had agreed in article IX, section 1, of the collective-bargaining agreement to follow the tenets of progressive and corrective discipline which consisted of oral and written reprimands and suspensions prior to discharge. Since no special provisions were negotiated for DCFS employees, as a matter of contract, the concept of progressive discipline had to be applied. The fact DCFS was subject to a high degree of public scrutiny did not obviate the application of progressive discipline and was, he concluded, irrelevant.

The arbitrator then found working for a high-profile agency did not require deviation from the application of progressive discipline. He reasoned the function of progressive discipline was to attempt to rehabilitate the errant employee, and not to punish or set an example for others. He found the reasons for discharging grievant were a reaction to the high-profile nature of the Department and for the purpose of setting an example for other employees that similar conduct would not be tolerated. He maintained allowing discharge under these circumstances would be inconsistent with progressive discipline’s underlying premise of rehabilitation.

While the arbitrator asserted progressive discipline need not be applied in all cases — those being where the offense is of an extremely serious nature — and found the grievant’s actions were “serious,” he determined they “were not of such a degree” as to mandate discharge. The arbitrator reasoned no rule was cited by DCFS which mandated discharge for such an offense. While DCFS relied on section 302.700 of the personnel rules to discharge grievant, he found this section to be a general statement of grounds for discharge as opposed to a specific rule attaching a measure of discipline for the kind of misconduct engaged in by a grievant. The lack of a citation to a rule led the arbitrator to the conclusion discharge for such conduct was not mandated in every incident.

Moreover, in examining the exact nature of the misconduct, the arbitrator determined the substance of the alleged interview had no effect on the determination the mother had abused the daughter. The decision to pursue the allegation was premised upon information received from the father. The falsified information was, the arbitrator concluded, immaterial to the decision-making process at that time. This lack of materiality “weigh[ed] against the seriousness of Grievant’s misconduct insofar as determining if progressive discipline [could] be bypassed.”

The arbitrator further found DCFS had not shown grievant had been unsuccessfully disciplined in the past or that her conduct justified bypassing progressive discipline, nor had DCFS shown grievant was beyond rehabilitation. In short, he determined progressive discipline had not been given a chance to work. Using principles of progressive discipline, the arbitrator went on to determine grievant’s discharge should be reduced to a suspension and ordered reinstatement without back pay.

Plaintiffs, thereafter, filed a motion to vacate the arbitrator’s award (Ill. Rev. Stat. 1991, ch. 10, par. 112) based on public policy considerations and because the arbitrator exceeded his authority. The trial court vacated the arbitrator’s award because it exceeded the arbitrator’s authority and was against the “public policy of [Illinois] as set forth in the Abused and Neglected Child Reporting Act (Ill. Rev. Stat. 1991, [c]h. 23, [par.] 2051 et seq.) and procedure 300.100(c)(3) [sic][,] adopted May 11, 1989, implementing 89 Illinois Administrative Code, Section 300.100.” Accordingly, the court ordered grievant discharged from her position as a child protective investigator. This appeal followed.

Analysis

Plaintiffs challenged the validity of the arbitrator’s award, first contending the award violated public policy, and second, the arbitrator exceeded his authority in entering such an award. At oral argument, plaintiffs conceded, however, the arbitrator exceeded his authority only to the extent his award violated public policy. If this court concludes a clear and dominant public policy does not exist requiring the arbitrator’s award be vacated, plaintiffs acknowledged the arbitrator had the authority to enter the order. The sole issue before us is whether the arbitrator’s award violated public policy.

Judicial review of an arbitrator’s award is extremely limited. (American Federation of State, County & Municipal Employees v. State of Illinois (1988), 124 Ill. 2d 246, 254, 529 N.E.2d 534, 537 (AFSCME); Board of Education of School District U-46 v. Illinois Educational Labor Relations Board (1991), 216 Ill. App. 3d 990, 998, 576 N.E.2d 471, 475 (District U-46).) A labor arbitration award must be enforced if the arbitrator acts within his scope of authority and the award draws its essence from the parties’ collective-bargaining agreement. (United Paperworkers International Union v. Misco, Inc. (1987), 484 U.S. 29, 36, 98 L. Ed. 2d 286, 298, 108 S. Ct. 364, 370; AFSCME, 124 Ill. 2d at 254, 529 N.E.2d at 537.) An arbitrator’s award, however, may not stand if it contravenes paramount considerations of public policy. (AFSCME, 124 Ill. 2d at 260, 529 N.E.2d at 540; Board of Trustees of Community College District No. 508 v. Cook County College Teachers Union, Local 1600 (1979), 74 Ill. 2d 412, 423-24, 386 N.E.2d 47, 52; City of Springfield v. Springfield Police Benevolent & Protective Association, Unit No. 5 (1992), 229 Ill. App. 3d 744, 751, 593 N.E.2d 1056, 1060; City of De Kalb v. International Association of Firefighters, Local 1236 (1989), 182 Ill. App. 3d 367, 372, 538 N.E.2d 867, 870.) If the contract as interpreted by the arbitrator violates some express public policy, courts are obliged to refrain from enforcing it. W.R. Grace & Co. v. Local Union 759 (1983), 461 U.S. 757, 766, 76 L. Ed. 2d 298, 307, 103 S. Ct. 2177, 2183; District U-U6, 216 Ill. App. 3d at 998, 567 N.E.2d at 476.

A court’s refusal to enforce an arbitrator’s award because it is contrary to public policy is a specific application of the more general doctrine, rooted in the common law, that a court may refuse to enforce contracts that violate law or public policy. (Misco, 484 U.S. at 42, 98 L. Ed. 2d at 301, 108 S. Ct. at 373; District U-46, 216 Ill. App. 3d at 998, 567 N.E.2d at 476.) While there is no precise definition of public policy, it is to be found in the constitution and statutes and, when these are silent, in its judicial decisions. (AFSCME, 124 Ill. 2d at 260, 529 N.E.2d at 540; De Kalb, 182 Ill. App. 3d at 372, 538 N.E.2d at 870; Department of Central Management Services v. American Federation of State, County & Municipal Employees (1990), 197 Ill. App. 3d 503, 512, 554 N.E.2d 759, 765 (hereinafter CMS).) Such a public policy must be well-defined and dominant, and is to be ascertained “ ‘by reference to the laws and legal precedents and not from general considerations of supposed public interests.’ ” W.R. Grace & Co., 461 U.S. at 766, 76 L. Ed. 2d at 307, 103 S. Ct. at 2183, quoting Muschany v. United States (1945), 324 U.S. 49, 66, 89 L. Ed. 744, 756, 65 S. Ct. 442, 451.

The public policy of a State or nation must be determined by its constitution, laws, and judicial decisions — not by the varying opinions of laymen, lawyers, or judges as to the demands of the interests of the public. (AFSCME, 124 Ill. 2d at 260, 529 N.E.2d at 540.) The public policy exception which permits vacatur of arbitration awards rising from collective-bargaining agreements is an “extremely narrow” concept (CMS, 197 Ill. App. 3d at 512, 554 N.E.2d at 765), and in order to vacate an arbitrator’s award, the public policy violation must be clearly shown. AFSCME, 124 Ill. 2d at 261, 529 N.E.2d at 540-41.

We agree with plaintiffs: a “well-defined and dominant” public policy exists in Illinois favoring the protection of children, including protecting children from abuse. This public policy is evidenced by the numerous statutes enacted by the legislature with a dominant purpose of protecting children. See, e.g., Disclosure of Offenses Against Children Act (Ill. Rev. Stat. 1991, ch. 23, par. 2240 et seq.); Intergovernmental Missing Child Recovery Act of 1984 (Ill. Rev. Stat. 1991, ch. 23, par. 2251 et seq.); Abandoned Refrigerator Act (Ill. Rev. Stat. 1991, ch. 23, par. 2355.9 et seq.); Sale of Tobacco to Minors Act (Ill. Rev. Stat. 1991, ch. 23, par. 2356.9 et seq.); Smokeless Tobacco Limitation Act (Ill. Rev. Stat. 1991, ch. 23, par. 2358 — 21 et seq.); Sale of Immoral Publications to Children Act (Ill. Rev. Stat. 1991, ch. 23, par. 2362.9 et seq.); Child Labor Law (Ill. Rev. Stat. 1991, ch. 48, par. 31.1 et seq.); Child Passenger Protection Act (Ill. Rev. Stat. 1991, ch. 951/2, par. 1101 et seq.); Child Vision and Hearing Test Act (Ill. Rev. Stat. 1991, ch. 23, par. 2331 et seq.); Child Witness Trauma Reduction Act (Ill. Rev. Stat. 1991, ch. 37, par. 800 et seq.); Illinois Poison Prevention Packaging Act (Ill. Rev. Stat. 1991, ch. 111 1/2, par. 291 et seq.); Child Care Act of 1969 (Ill. Rev. Stat. 1991, ch. 23, par. 2211 et seq.); Wrongs to Children Act (Ill. Rev. Stat. 1991, ch. 23, par. 2351 et seq.); Minor Identification and Protection Act (Ill. Rev. Stat. 1991, ch. 23, par. 2451 et seq.); Interstate Compact on Placement of Children Act (Ill. Rev. Stat. 1991, ch. 23, par. 2601 et seq.); Abandoned Children Prevention Act (Ill. Rev. Stat. 1991, ch. 23, par. 2358 — 90 et seq.); Neglected Children Offense Act (Ill. Rev. Stat. 1991, ch. 23, par. 2359.9 et seq.); “An Act to revise the law in relation to criminal jurisprudence” (Ill. Rev. Stat. 1991, ch. 23, par. 2368 et seq.); Improper Supervision of Children Act (Ill. Rev. Stat. 1991, ch. 23, par. 2368.9 et seq.); Child Curfew Act (Ill. Rev. Stat. 1991, ch. 23, par. 2370.9 et seq.); Missing Children Registration Law (Ill. Rev. Stat. 1991, ch. 23, par. 2270 et seq.); Child Sexual Abuse Prevention Act (Ill. Rev. Stat. 1991, ch. 23, par. 2080 et seq.); and various sections of the Criminal Code of 1961 (e.g., Ill. Rev. Stat. 1991, ch. 38, pars. 10 — 5 (child abduction), 10 — 6 (harboring a runaway), 11 — 20.1 (child pornography), 11— 21 (harmful material), 12 — 4.3 (aggravated battery of a child), 12— 4.4 (aggravated battery of an unborn child), 33D — 1 (contributing to the criminal delinquency of a juvenile)).

More specifically, in the area of child abuse, the State has a strong interest in protecting children where the potential for abuse or neglect exists and in curtailing the incidences of child abuse. (See Lehman v. Stephens (1986), 148 Ill. App. 3d 538, 547, 499 N.E.2d 103, 109.) In 1963, the legislature enacted the Children and Family Services Act (Services Act) (Ill. Rev. Stat. 1991, ch. 23, par. 5001 et seq.), with the specific purpose of “creating] a Department of Children and Family Services [(DCFS)] to provide social services to children and their families, to operate children’s institutions, and to provide certain other rehabilitative and residential services as enumerated.” (Ill. Rev. Stat. 1991, ch. 23, par. 5001.) DCFS is the single State agency for the planning and coordinating of child abuse and neglect prevention programs and services. (Ill. Rev. Stat. 1991, ch. 23, par. 5004a(a).) Each year, DCFS is to submit a comprehensive child abuse and neglect prevention plan to the legislature. One element of this plan is to propose strategies to “meet the goal of reducing the incidence of child abuse and neglect and reducing the number of reports of suspected child abuse and neglect made to the Department.” Ill. Rev. Stat. 1991, ch. 23, par. 5004a(a).

Under the Abused and Neglected Child Reporting Act (Ill. Rev. Stat. 1991, ch. 23, par. 2051 et seq.), DCFS is also the sole agency responsible for receiving and investigating reports of child abuse or neglect. (Ill. Rev. Stat. 1991, ch. 23, par. 2057.3.) Upon receiving reports of abuse, DCFS is required to protect the best interests of the child, offer protective services in order to prevent any further harm to the child and to other children in the same environment or family, stabilize the home environment, preserve family life whenever possible and protect the health and safety of children in all situations in which they are vulnerable to child abuse and neglect. (Ill. Rev. Stat. 1991, ch. 23, par. 2052.) Once a report of child abuse is received, the following procedure is employed in the investigation of suspected child abuse or neglect cases:

“(2) *** Upon receipt of a report [of suspected child abuse], the Child Protective Service Unit shall make an initial investigation and an initial determination whether the report is a good faith indication of alleged child abuse or neglect.
(3) If [DCFS] determines the report is a good faith indication of alleged child abuse or neglect, then a formal investigation shall commence and, pursuant to Section 7.12 of this Act, may or may not result in an indicated report. The formal investigation shall include: direct contact with the subject or subjects of the report as soon as possible after the report is received; an evaluation of the environment of the child named in the report and any other children in the same environment) a determination of the risk to such children if they continue to remain in the existing environments, as well as a determination of the nature, extent and cause of any condition enumerated in such report; the name, age and condition of other children in the environment; and an evaluation as to whether there would be an immediate and urgent necessity to remove the child from the environment if appropriate family preservation services were provided.” (Emphasis added.) Ill. Rev. Stat. 1991, ch. 23, pars. 2057.4(b)(2), (b)(3).

Under the agency’s procedural regulations, investigators are required to contact all noninvolved child subjects and to document such interviews during formal investigations. Sections 300.110(c)(3) and (d) of DCFS internal rules provide:

3) All Children in the Household
The investigative worker is required to establish in-person contact with all other children who are regular members of the household of the alleged child victim, as well as other children who are listed on the CANTS 1, Oral Report, prior to indicating the report.
If the abuse/neglect is alleged to have occurred in a household other than the child’s regular household, licensed or unlicensed, and the alleged perpetrator is a member of that other household (e.g., a day care home, the home of a baby-sitter, the home of a relative caretaker, etc.), the investigative worker is required to establish in-person contact with all of the children who are regular members of that other household, as well. In cases where the perpetrator is accused of abusing or neglecting the child in the child’s own home, the investigation must be expanded to include interviews with any children in the perpetrator’s own home.
The investigative worker shall interview all children, in person and either individually or in a group as required by the investigative standards, out of the presence of the child’s caretaker and the alleged perpetrator, if at all possible. Another person whom the child trusts but who is not the alleged perpetrator may be present during the interview if it will make the child more comfortable.
d) Documentation of Required Contacts
1) CA/N Investigation Interview Note (CANTS 17A)
The investigative worker shall make an entry on the CANTS 17A for every completed or attempted contaet/interview with the adult members of the household, the alleged perpetrators) and the non-involved children. Completed CANTS 17A should contain a summary of the facts gathered during the interviews, a description of the environment and the investigator’s assessment of the credibility of the interviewee.” (Emphasis in original.)

The whole mission of DCFS is to protect children from abuse and to prevent it from occurring. It is also the State agency responsible for providing protective and welfare services to abused and neglected children and their families. Inherent in the public policy of protecting children from abuse we find another public policy requiring accurate documentation of investigations. Investigations into alleged cases of child abuse must necessarily be complete and accurate. The written report in question was entirely fabricated — not only was it reported that an interview was conducted, when in fact it was not, but the grievant made up the details of the child’s statements, as reflected in the quoted passage from the arbitrator’s award. Not surprisingly the detailed statements she made up supported the recommendation she was to make, i.e., the case be “not indicated.” The fabrication of reports directed to the agency’s mission undermines both DCFS’ ability to fulfill its mission of protecting children from abuse and reducing the incidence of abuse, and diminishes the public perception of the agency and its staff. The statutory duty and purpose of DCFS, coupled with the State’s interest in protecting children from abuse at the very least indicates a public policy favoring the accurate and complete reporting of investigations.

• 5 Because we find, after an examination of the statutes, as well as the regulations promulgated by DCFS, a public policy favoring truthful documentation of child abuse investigations exists, we next address whether the arbitrator’s award violated this public policy. Grievant’s conduct in fabricating the report must be considered in context of the duty imposed upon her in her sensitive position of investigating allegations of child abuse. (See District U-46, 216 Ill. App. 3d at 1004, 576 N.E.2d at 479-80.) Public policy mandates truthful reporting of child abuse investigations, and the arbitrator found she did in fact falsify the report. Thus, under the circumstances, reinstating the grievant would violate public policy. It is the grievant’s specific conduct in the course of her employment which violates public policy. The safety and well-being of children require zealous investigation and honest reporting. Fabricating investigative reports endangers the lives of children suspected of living in an abusive environment. Public policy demands such conduct not be tolerated by employers and that they have power to discharge those engaging in such activity. Public policy cannot countenance reinstatement of this grievant. Her lies must be considered in the context of the duty imposed upon her by her position. Her lies defeat the essential purpose of her job — to investigate child abuse and protect children and families.

The amenability of a grievant to further discipline is irrelevant in cases being reviewed on public policy grounds. Furthermore, it was fortuitous that no harm resulted in this case from the falsification of reports. Simply because no one was hurt this time is insignificant. Grievant’s dishonesty on such a significant issue makes progressive discipline a risk that the children of this State need not take.

We also reject defendant’s contention the trial court erred in finding public policy existed in departmental regulations. In vacating the arbitrator’s award, the court found the award violated the public policy set forth in DCFS’ procedural regulations. These regulations are not part of the Code, but rather are part of the agency’s internal procedural manual, which sets forth procedures to implement certain sections of the Code. While case law makes clear public policy must be found in the constitution, statutes, and judicial decisions, we find departmental regulations promulgated to fulfill a legislative mandate may be considered. (See District U-46, 216 Ill. App. 3d at 1001, 576 N.E.2d at 477-78.) Moreover, even if an agency’s rules cannot be considered, we note the regulation was not the only source for the trial court’s finding. It also found the award violated the public policy set forth in the Act.

We also find meritless defendant’s argument this court applied the wrong standard in CMS, City of Springfield, Board of Education of Harrisburg Community Unit School District No. 3 v. Illinois Educational Labor Relations Board (1992), 227 Ill. App. 3d 208, 591 N.E.2d 85, and District U-46. In each case, this court focused on whether there existed a public policy governing the case and whether the arbitrator’s award violated such policy. This is clearly in accord with the standards set forth in case law for vacating arbitration awards on public policy grounds. Moreover, in these cases we did not improperly reweigh facts determined by an arbitrator.

Defendant alternatively argues if this court determines the arbitrator’s award violates public policy, this court should remand the case to the arbitrator for an appropriate remedy. This is not a proper case for remandment. We affirm the trial court’s judgment.

Affirmed.

STEIGMANN, P.J., and COOK, J., concur.