author: JUSTICE BUCKLEY

text:
    DEAN A. MONCO et al., Plaintiffs-Appellants and Cross-Appellees, v. RONALD JANUS et al., Defendants-Appellees and Cross-Appellants (Hamman and Benn et al., Appellees and Cross-Appellants).
    First District (1st Division)
    No. 1—90—0670
    Opinion filed October 21,1991.
    Modified on denial of rehearing December 23,1991.

      Schuyler, Roche & Zwirner, of Chicago (Paul E. Lehner, of counsel), for appellants.
    Hamman & Benn, of Chicago (Dawn M. Cassie, of counsel), for appellees.
   JUSTICE BUCKLEY

delivered the opinion of the court:

In February 1987, plaintiff Dean Monco (Monco) petitioned to dissolve on the grounds of deadlock JI-SCO-NI Enterprises, Inc. (Jisconi), an Illinois corporation, owned 50% each by Monco and defendant Ronald Janus (Janus). Jisconi’s sole asset is its ownership of patent rights to an invention which Monco and Janus had assigned to Jisconi. Janus counterclaimed against Monco seeking to vacate the assignment and to compel Monco to turn over the Jisconi shares he owned on the grounds that the invention was Janus’ idea, that Moneo was Janus’ personal attorney, and that the assignment and Monco’s stock ownership in Jisconi were the result of Monco’s undue influence and breach of fiduciary duty to Janus. Moneo responded in part to the counterclaim with a motion for sanctions pursuant to section 2 — 611 of the Code of Civil Procedure (Ill. Rev. Stat. 1989, ch. 110, par. 2— 611) against Janus and his attorneys. In this motion, Moneo alleged that Janus’ counterclaim contained false allegations of fact, that Janus’ counsel failed to investigate these facts before filing, and that Janus’ counsel improperly threatened disciplinary proceedings against Moneo to force Moneo to settle the case.

On October 4, 1989, the circuit court of Cook County dismissed Janus’ counterclaim holding that, while an attorney-client relationship existed and a breach of fiduciary duty had occurred, Janus knowingly ratified his dealings with Moneo. Thereafter, the court denied Monco’s motion for sanctions.

Moneo appeals from the circuit court’s denial of his motion for sanctions. Janus cross-appeals from the dismissal of his counterclaim and from the denial by the circuit court of leave to file three affidavits which Janus tendered during the hearing on Monco’s motion for sanctions. For the reasons that follow, we affirm the denial of sanctions and reverse the dismissal of Janus’ counterclaim.

The facts of this case defy succinct summary. The record shows that Janus is a college graduate, a certified teacher, and the sole proprietor of his own landscaping business for over 17 years. Moneo is an attorney admitted to practice in Illinois and before the United States Patent and Trademark Office. Moneo is also a shareholder in a Chicago law firm.

Prior to the transaction in question, Janus and Moneo had been social acquaintances since 1970. In 1981 and 1984, Janus contacted Moneo to discuss possible patentable ideas. These ideas were not pursued. In the spring of 1985, Moneo engaged Janus to perform landscaping services for his home. On Memorial Day weekend, while performing such services, Janus sat down with Moneo at Monco’s kitchen table and drew a sketch of an idea for a beverage container to be worn around the neck of the user. The content of the conversation which next transpired is disputed by the parties, and nothing in writing exists to verify either party’s version of the agreement.

Janus testified that after Monco told him that his idea was fantastic, Janus asked Monco if he was interested in pursuing the idea together. Janus told Monco that Monco could help him with the idea and share in any profits. Janus testified that he and Monco agreed to share expenses equally and that Monco would provide business contacts and free legal services to the venture. Janus denied that Monco told him to obtain independent legal advice and denied that he and Moneo were “50/50” partners.

Moneo testified that Janus specifically asked him to go into business and offered Moneo a 50% interest in the venture. Moneo accepted Janus’ offer and the two shook hands. Moneo testified they discussed various matters, including licensing the patent to a manufacturing concern, from which they would receive royalties, versus assigning the patent to a separate corporation owned by them equally, which would avoid personal liability but would require business capital and marketing. Moneo testified that he specifically advised Janus to obtain outside counsel to make sure that Janus’ interests were represented. Janus agreed. Monco’s wife, who was present for much of the conversation, corroborated Monco’s testimony.

Significantly, at the kitchen table meeting, or any time thereafter, Moneo admitted that he never advised Janus that if Janus were to assign the patent to a jointly owned corporation, Janus would lose exclusive control over the patent in the event of corporate dissolution. In such situation, Janus and Moneo as co-owners of the patent would have equal rights to market the patent without accounting to the other for profits. Moneo also testified that he did not inform Janus of the option of licensing the patent to Jisconi as opposed to a full assignment. Moneo explained that Janus was not his client and that anything less than a full assignment to a jointly owned company would be inconsistent with their agreement to be “50/50” partners.

In the summer months following the “kitchen table” meeting, Janus and Moneo communicated by telephone and letter and exchanged ideas on numerous matters involving the beverage container, including what entity would be best for liability and tax purposes. Ultimately, the parties agreed to incorporate and name the entity using the first names of their children. Moneo also suggested and conducted a "prior art” search to determine if Janus’ idea was patentable. Based on the results of this search, Moneo concluded and Janus agreed that a patent application was appropriate.

On September 19, 1985, Janus and Moneo met with Mark Fine, an attorney and friend of Moneo, about incorporating Jisconi. Fine prepared draft articles of incorporation and testified that Moneo and Janus told him that they were equal partners in the new business. Fine heard nothing during this conversation to indicate to him that Moneo and Janus were anything other than business partners. Fine also testified that he advised Janus to obtain independent counsel to prepare a buy/sell and shareholders’ agreement in order to protect Janus’ interests. Janus’ recollection about this meeting conflicted with Fine’s. Janus denied ever discussing anything regarding specific ownership interests, and he could not remember Fine’s advice to obtain independent counsel.

After the meeting with Fine, Janus asked Moneo to prepare the incorporation papers. Moneo was reluctant to prepare these papers because he did not practice corporate law. However, using Fine’s draft, Moneo prepared the papers and forwarded them to Janus for his review and signature. Janus admitted that Moneo told him to have his own counsel review the papers but Janus never did. Janus testified that he considered Moneo his attorney and thought that Moneo would assure that Janus’ interests were protected. Jisconi was incorporated on October 2, 1985.

Following the incorporation of Jisconi, Moneo prepared the initial patent application for the beverage container. The application, related documents, and the assignment of the patent to Jisconi were forwarded to Janus for his review. Moneo testified that he again told Janus to have his own counsel review the documents, but Janus denied ever receiving this advice. On October 28, 1985, without the aid of independent counsel, Janus executed the parent patent application and an initial assignment. Moneo filed the parent patent application and related documents on November 12, 1985.

Moneo later forwarded Janus an Internal Revenue Service Sub-chapter S election form showing Janus and Moneo each owning 500 shares of Jisconi. Although Janus claimed that this was the first time he learned that he and Moneo were equal owners of Jisconi, and although he disapproved, he signed the form in mid-November without expressing any objection to Moneo. Janus explained that Moneo was his attorney and he was just following Monco’s instructions. Again, Janus did not have the aid of independent counsel before executing this document.

In February 1986, without Monco’s knowledge, Janus began consultations with a patent attorney named George Dvorak, whom Janus learned about through a local bar reference. Janus saw Dvorak on several occasions throughout 1986 although the record is not entirely clear on what dates Dvorak was consulted or when their relationship ceased. During discovery and at trial, Janus asserted the attorney-client privilege regarding the content of his conversations with Dvorak.

In late February 1986, Moneo prepared a draft of a second patent application, called a continuation-in-part (CIP) application, and gave it to Janus for his review. This application included patentable claims regarding the container having the capacity to hold a carbonated beverage and a specialized straw. Neither of these claims was included within the first application. Moneo told Janus that because he had participated in the development of these new features, the patent laws required that he name himself as a co-inventor on the CIP application. Although the record is not entirely clear on this point, Janus either consulted with Dvorak before signing the application or soon afterwards. In any event, Janus made no objection to the CIP application. On March 26, 1986, at Moneo’s office and in the absence of Janus’ independent counsel, Janus and Moneo executed the CIP application and a second assignment of all patent rights to Jisconi.

On July 30, 1986, Moneo wrote Janus and addressed several subjects, including a proposed shareholders’ agreement which Moneo had previously drafted and which addressed the disposition of Jisconi shares upon the occurrence of certain circumstances. In this letter, Moneo also stated that, as he had told Janus on several occasions since forming Jisconi, Janus should obtain independent counsel to review the agreement as well as other matters connected with Jisconi. This was the first time in writing that Moneo advised Janus to obtain independent counsel. Neither Janus nor Anthony Vaccarello, an attorney retained shortly thereafter by Janus, raised any concerns about the statements in the letter. Janus again invoked the attorney-client privilege regarding his communications with Vaccarello.

On August 5, 1986, Vaccarello wrote Moneo and identified himself as Janus’ counsel regarding the proposed shareholders’ agreement. In this letter, Vaccarello requested certain corporate documents, including any pre-incorporation agreements, shareholders’ meeting minutes and certificates, and directors’ resolutions and minutes.

On August 9, 1986, -without Vaccarello’s presence, Moneo and Janus met at Monco’s office to sign numerous corporate documents including the documents that Vaccarello requested. In particular, Janus and Moneo executed a shareholders’ resolution setting forth their original agreement that they each would assign all patent rights to Jisconi; that Moneo would prepare the patent applications; and that Moneo and Janus would equally share the expenses of the business. Moneo and Janus also executed share certificates showing each to own 500 shares of Jisconi stock and meeting minutes of the first shareholders’ meeting formally designating themselves as Jisconi’s sole directors. Moneo and Janus dated these documents as of November 1, 1985, to conform the written record to their agreement as of the time of incorporation. Janus gave the executed documents to Vaccarello; neither Janus nor Vaccarello objected to the documents at anytime thereafter.

Beginning in late summer, Janus began to voice objections to Moneo regarding Monco’s naming of himself as an inventor on the previously filed CIP application. Controversy also arose over the sharing of business expenses and Janus’ complaint that Moneo had assumed control of Jisconi even though Janus was president of Jisconi. These differences soon led to a total breakdown in the parties’ relationship. In early September, a meeting was held between Moneo and Janus and their respective counsel in an attempt to resolve the deadlock. The meeting was only partially successful. However, despite the parties’ differences, on September 29, 1986, Janus executed an application for a design patent and another assignment of all patent rights to Jisconi. Neither Janus, Dvorak nor Vaccarello objected.

In December 1986, Janus arranged a meeting with Moneo in an attempt to resolve the deadlock. At this meeting, to correct an omission in the original patent application, Janus executed replacement documents, including another assignment to Jisconi. These documents were executed without the presence of Janus’ counsel. Janus explained he executed this assignment under the assumption that the parties were going to reconcile. He further explained that he believed Moneo was still his attorney and, pursuant to Monco’s instructions, his signature was in Jisconi’s best interests. At this same meeting, after Janus executed the replacement documents, Moneo told Janus that Jisconi could not continue in light of the deadlock and so he gave Janus a proposed buy-out agreement. Janus refused to sell his shares and later made a counter proposal to purchase Monco’s shares. The parties remained deadlocked.

Moneo initiated this lawsuit by filing his petition to dissolve Jisconi in February 1987. Janus counterclaimed in June 1987 alleging undue influence, overreaching and Monco’s failure to inform Janus that, upon Jisconi’s dissolution, each party could get 100% of the nonexclusive rights to market the patent and keep profits without accounting to the other. Janus alleged that he did not know this legal consequence, as it was a peculiarity of the patent laws, arid requested as relief that the assignment to Jisconi be vacated, that Monco’s 50% interest in Jisconi be forfeited as an excessive fee, and that damages be awarded.

In July 1988, Monco filed a motion for summary judgment on Janus’ counterclaim and a motion for sanctions against Janus, Janus’ attorney Marvin Benn, and the law firm of Hamman & Benn. In the motion for summary judgment, Monco claimed that he was acting as Janus’ business partner and not as his attorney. On October 17, 1988, the circuit court denied the motion for summary judgment.

In May and June 1989, a nine-day trial was held on Janus’ counterclaim. At its close, the circuit court ruled that Janus had proved that an attorney-client relationship existed between Monco and Janus and that Monco had benefited from the relationship. Therefore, under Klaskin v. Klepak (1989), 126 Ill. 2d 376, 534 N.E.2d 971, the court stated that Moneo carried the burden of proving by clear and convincing evidence that: (1) he made a full and frank disclosure of all relevant information to Janus; (2) he gave adequate consideration to Janus to obtain his 50% interest; and (3) Janus had independent legal advice before completing the transaction. The court also ordered additional briefing on Monco’s newly tendered defense that Janus ratified Monco’s alleged improper conduct.

On October 4, 1989, the court ruled that Monco had not presented clear and convincing evidence that he had made full and frank disclosure of all relevant information to Janus. The court found in particular that Monco failed to advise Janus of the option of licensing the patent to Jisconi, as opposed to assigning it, and that Monco failed to inform Janus that Janus would lose exclusive control of the patent in the event of dissolution.

Additionally, the court found that Monco failed in his burden of showing that he gave adequate consideration to support his 50% interest in Jisconi. The court was persuaded by the fact that Moneo was on his firm’s payroll at the time he performed the legal services which Monco claimed supported his one-half interest. On the final factor, the court found that Janus had not received independent counsel prior to executing the initial assignment.

On the issue of ratification, the court opined that even though Moneo had exercised undue influence, the conduct of Janus and his counsel in not objecting to Monco’s conduct resulted in the ratification of the entire transaction, which the court found voidable, not void. In its reasoning, the court drew an adverse inference against Janus for his repeated assertions of the attorney-client privilege with respect to attorneys Dvorak and Vaccarello. Based on this inference, the court concluded that, as early as February 1986, Janus had independent legal advice and full knowledge of the consequence of the assignment to Jisconi.

After the court’s ruling, Monco filed an amended motion for sanctions. At the hearing on Monco’s motion in December 1989, the court denied Janus’ motion for leave of court to file for the first time his affidavit and the affidavits of his attorneys, Marvin Benn and Dawn M. Cassie, all of which Janus tendered to show the veracity of the allegations in his counterclaim. Relying on the findings within its prior ruling, the circuit court denied Monco’s motion for sanctions. The petition to dissolve Jisconi has been stayed pending disposition of this appeal.

Monco appeals the denial of his motion for sanctions, alleging that the circuit court abused its discretion in denying the motion in light of: (1) the overwhelming evidence of Janus’ ratification; (2) Janus’ offensive use of the attorney-client privilege; (3) the false statements of fact contained in Janus’ counterclaim; (4) Janus’ willful failure to investigate the facts alleged in the counterclaim; and (5) Janus’ threat to file professional complaints against Moneo in an effort to force Moneo to settle. Janus cross-appeals the dismissal of his counterclaim, alleging: (1) the circuit court erred in its application of the test required of an attorney to overcome an unduly influenced transaction; (2) public policy precludes an attorney from asserting the defense of ratification to a transaction with a client where that transaction is tainted by undue influence; and (3) public policy precludes the defense of ratification to an attorney-client transaction where the attorney has given inadequate consideration in exchange for the benefits the attorney received.

The first issue we address is whether a client’s subsequent conduct can cure an attorney-client transaction which is the product of the attorney’s undue influence. This is an issue of first impression in Illinois.

Transactions between attorneys and clients are closely scrutinized. When an attorney engages in a transaction with k client and is benefited thereby, a presumption arises that the transaction proceeded from undue influence. (Klaskin, 126 Ill. 2d at 388, 534 N. E.2d at 975.) Once a presumption is raised, the burden shifts to the attorney to come forward with evidence that the transaction was fair, equitable and just and that the benefit did not proceed from undue influence. (Klaskin, 126 Ill. 2d at 388, 534 N.E.2d at 975.) Because a strong presumption of undue influence arises when an attorney engages in a transaction with a client and is benefited thereby, courts require clear and convincing evidence to rebut this presumption. (Klaskin, 126 Ill. 2d at 388, 534 N.E.2d at 975; Franciscan Sisters Health Care Corp. v. Dean (1983), 95 Ill. 2d 452, 465, 448 N.E.2d 872, 878.) Some of the factors the courts deem persuasive in determining whether the presumption of undue influence has been overcome include a showing by the attorney (1) that he or she made a full and frank disclosure of all relevant information; (2) that adequate consideration was given; and (3) that the client had independent advice before completing the transaction. (McFail v. Braden (1960), 19 Ill. 2d 108, 118, 166 N.E.2d 46, 52.) Once the presumption has been rebutted, the burden of production and persuasion is again on the client to show undue influence. Franciscan Sisters, 95 Ill. 2d at 466, 448 N.E.2d at 878.

In this case, the circuit court initially concluded that Moneo had failed to rebut the presumption of undue influence. The basis for this conclusion was Monco’s failure to prove by clear and convincing evidence the three McFail factors noted above. Although Moneo has not directly appealed the circuit court’s conclusions on the three McFail factors, even if he did, we would find those conclusions to be supported by the manifest weight of the evidence.

Initially, we agree with the circuit court that an attorney-client relationship existed between Moneo and Janus. The evidence supports that Moneo was acting as the attorney for Jisconi as well as for both himself and Janus. While the evidence also shows that Moneo and Janus were business partners, Monco’s role as Janus’ partner does not foreclose the conclusion that Moneo was also Janus’ personal attorney.

We also agree with the circuit court that Monco entered into a beneficial business transaction with Janus. Accordingly, under relevant supreme court precedent, Monco was required to prove by clear and convincing evidence the three McFail factors. We agree that Monco failed to meet his burden.

Under the first factor, it cannot be readily disputed that Moneo failed to give Janus a “full and frank disclosure of all relevant information” prior to Janus making the first assignment of all his rights in the patent to Jisconi. Moneo admitted at trial that he did not learn of the effect of Jisconi’s dissolution under the patent laws until shortly before he filed his petition for dissolution in February 1987. Thus, there is no way Moneo could have timely given Janus the required information.

Under the second factor, Moneo did not present clear and convincing evidence to show that he gave adequate consideration to support the 50% ownership interest in Jisconi he received. Admittedly, Moneo was the “brains” behind taking the appropriate measures to assure that Janus’ idea became patented and that the idea was marketed profitably. In this regard, Moneo spent, as he testified, hundreds of hours of his own time working on Jisconi matters. While Moneo worked on Jisconi at a time when he was fully compensated by his firm, Moneo testified that his work on Jisconi prevented him from billing firm clients which in turn contributed to a lower yearly salary. Aside from the legal and nonlegal time Moneo contributed towards Jisconi, the record shows that Moneo contributed over $13,000 in capital contributions. These expenses were never reimbursed by Jisconi. Moreover, Moneo fronted Janus’ one-half of the expenses from time to time when Janus became unable to pay his share.

Notwithstanding the above consideration contributed by Moneo, we agree that it was not clear and convincing evidence of adequate consideration. Monco’s 50% interest gave him an equal voice in Jisconi affairs. If Janus and Moneo disagreed, Monco’s interest gave him the ability to deadlock Jisconi’s affairs and potentially hold Janus hostage. It must be remembered that this extreme leverage was given to Moneo at a time when an attorney-client relationship existed. More importantly, the beverage container idea originated with Janus. Even in Monco’s opinion, the idea had great money-making potential. We agree that Monco’s labor and capital contributions were not adequate consideration to support the benefits which Moneo could ultimately reap.

As for the third factor, the record shows that Janus did not have independent counsel before executing the first assignment. According to Janus, at this stage of their relationship, Moneo was his personal attorney and was looking out for his interests. Although Moneo advised Janus to have independent counsel to look over his work, this advice was insufficient. Janus’ trust in Moneo was great. The two had been personal acquaintances since 1970, and Janus had consulted Moneo on two prior occasions regarding other patentable ideas. In light of Janus’ extreme trust in Moneo, Monco’s suggestion that Janus have someone look over his work was insufficient to satisfy Monco’s obligation to assure that Janus had independent counsel before executing the assignment.

As the foregoing analysis shows, we agree that Moneo failed to rebut the presumption of undue influence. Accordingly, we next focus on Monco’s affirmative defense of ratification. Janus responds to this defense by arguing that, on public policy grounds, it is improper to apply the defense of ratification to an attorney-client transaction which is the product of the attorney’s undue influence. Janus further argues that ratification is improper where the attorney has given inadequate consideration in exchange for the benefits he has received.

We disagree with Janus’ assertion that public policy would per se prohibit the application of the affirmative defense of ratification to an attorney-client transaction which is the product of the attorney’s undue influence. We note that attorney-client transactions are not void in Illinois but merely presumptively fraudulent. (In re Marriage of Pagano (1989), 181 Ill. App. 3d 547, 558-59, 537 N.E.2d 398, 405.) This presumption has as its basis the public policy against attorneys using their position of trust and dominant power to take unfair advantage of their client during an attorney-client transaction. (Franciscan Sisters, 95 Ill. 2d at 464-65, 448 N.E.2d at 878.) To satisfy the demands of this public policy, our supreme court created the presumption of undue influence and the clear and convincing standard required to overcome it. Franciscan Sisters, 95 Ill. 2d at 465, 448 N.E.2d at 878.

The fact that attorney-client transactions are voidable and not void supports our conclusion that in certain situations, a client’s post-transaction conduct can properly amount to an affirmance of that transaction notwithstanding that it is the product of the attorney’s undue influence. To hold otherwise would, in our opinion, unsettle attorney-client transactions despite an attorney’s reasonable reliance that the transaction was a “done deal.” Moreover, to hold otherwise would contradict settled principles of traditional contracts and trusts law relating to ratification. See 13 W. Jaeger, Williston on Contracts §1627 (3d ed. 1970); Restatement (Second) of Trusts §218(2) (1959); Restatement (Second) of Contracts §173 (1981).

Further support for our conclusion can be found in supreme court cases in which the doctrine of laches has been applied to bar a client’s attempt to set aside a transaction which was the product of the attorney’s undue influence. (See Masters v. Elder (1950), 407 Ill. 512, 95 N.E.2d 360 (laches defense rejected on facts); Gaffney v. Harmon (1950), 405 Ill. 273, 90 N.E.2d 785 (laches applied — 16-year delay); Elmore v. Johnson (1892), 143 Ill. 513, 32 N.E. 413 (laches applied— seven-year delay); see also McCormick v. McCormick (1988), 180 Ill. App. 3d 184, 536 N.E.2d 419 (ratification allowed in trustee-beneficiary setting).) Although laches and ratification are distinct defenses, we believe that they are sufficiently analogous to support our conclusion that no per se bar exists.

Having determined that there is no per se bar to the application of ratification as an affirmative defense, we must now determine what an attorney must show to sustain a ratification defense. In our opinion, in light of the strong public policy considerations triggered by these attorney-client transactions, an attorney asserting a ratification defense must make the same showing as he would in initially overcoming the presumption of undue influence. Thus, the same three McFail factors are relevant to a ratification analysis, except they would be modified somewhat to reflect a post-transaction analysis.

We find support for our conclusion that the McFail factors are relevant in a ratification analysis in the Restatements (Second) of Trusts and Contracts. Section 218 of the Restatement (Second) of Trusts provides:

“Discharge of Liability by Subsequent Affirmance
(1) Except as stated in Subsection (2), if the trustee in breach of trust enters into a transaction which the beneficiary can at his option reject or affirm, and the beneficiary affirms the transaction, he cannot thereafter reject it and hold the trustee liable for any loss occurring after the trustee entered into the transaction.
(2) The affirmance of a transaction by the beneficiary does not preclude him from holding the trustee liable for a breach of trust, if at the time of the affirmance
(a) the beneficiary was under an incapacity; or
(b) the beneficiary did not know of his rights and the material facts which the trustee knew or should have known and which the trustee did not reasonably believe that the beneficiary knew; or
(c) the affirmance was induced by improper conduct of the trustee; or
(d) the transaction involved a bargain with the trustee which was not fair and reasonable.” (Restatement (Second) of Trusts §218 (1959).)

The Restatement (Second) of Contracts contains a similar provision:

“When Abuse of a Fiduciary Relation makes a Contract Voidable
If a fiduciary makes a contract with his beneficiary relating to matters within the scope of the fiduciary relation, the contract is voidable by the beneficiary, unless
(a) it is on fair terms, and
(b) all parties beneficially interested manifest assent with full understanding of their legal rights and of all relevant facts that the fiduciary knows or should know.” (Restatement (Second) of Contracts §173 (1981).)

As the Restatements make clear, a beneficiary’s ratification of a voidable trustee-beneficiary transaction requires at least full knowledge and fairness. This is consistent with our conclusion that the McFail factors are relevant to our analysis in this case.

Having determined the essentials of a ratification defense, we now focus on their application to this case. Relying on Galante v. Steel City National Bank (1978), 66 Ill. App. 3d 476, 384 N.E.2d 57, cert, denied (1979), 444 U.S. 841, 62 L. Ed. 2d 53, 100 S. Ct. 80, the circuit court concluded that Janus’ repeated assertions of the attorney-client privilege required a negative inference to be drawn with respect to Janus’ knowledge of the relevant patent laws. In Galante, the plaintiffs brought an action to recover insurance proceeds after certain property in which they claimed an interest was destroyed by fire. The insurance companies denied liability and raised the affirmative defense of arson. The defendants deposed the plaintiffs, but the plaintiffs invoked their fifth amendment privilege. The defendants then moved to dismiss the plaintiffs’ suit, which the court granted with prejudice.

The appellate court determined that because plaintiffs forced defendants into court, it would be unjust to allow plaintiffs to prosecute their case and, at the same time, refuse to answer questions, especially where the answers may substantially support defendants’ defense. The court reasoned that plaintiffs should not be permitted to use the fifth amendment privilege as both a shield of protection and a sword of attack. Galante, 66 Ill. App. 3d at 482, 384 N.E.2d at 62.

As more fully explained below, we believe it unnecessary to the disposition of this case for this court to render an opinion as to whether Galante permits the negative inference which the circuit court drew against Janus. We previously stated that the same three McFail factors which are relevant to a “traditional” judicial review of an attorney-client transaction are also relevant when assessing whether a ratification has taken place. During its analysis, the circuit court initially concluded that Moneo had failed to present clear and convincing evidence as to any of the three McFail factors. In its ratification analysis, the circuit court relied on Galante to conclude that Janus’ ratification occurred with the benefit of independent counsel and full knowledge of the effect the patent laws had on an assignment of a patent to a jointly owned corporation which later dissolved.

Our disagreement with the circuit court’s ratification analysis is that the court failed to address for the second time whether the Monco-Janus transaction was fair. Even if Galante permits a negative inference, on which point we again express no opinion, such inference fails to address the fairness of the transaction. As we have stated, the fairness of the transaction is a separate and indispensable inquiry to a ratification analysis of an attorney-client transaction. Because we conclude that the Monco-Janus transaction is unfair, we hold that the affirmative defense of ratification is unavailable to Moneo.

As previously discussed, Moneo did not present clear and convincing evidence that he gave adequate consideration to support the 50% interest he received in the patent. Moneo has not directly appealed this finding and, in any event, it is supported by the manifest weight of the evidence. Even when all of the benefits Moneo conferred are taken together, we believe they are out of proportion to the 50% interest he received and the corresponding rights associated with a shareholder holding such interest. Accordingly, for these reasons, the circuit court erred in dismissing Janus’ counterclaim.

As an independent ground to affirm the dismissal of Janus’ counterclaim, Moneo asks this court to rely on Galante and dismiss Janus’ counterclaim as a sanction for his offensive assertion of the attorney-client privilege. We question, however, whether the sanction of dismissal in Galante, which was founded in equity and public policy, can interfere with this court’s responsibility, similarly founded in equity and public policy, to independently assess an attorney-client transaction and set it aside when found to be unfair. Because we believe a court’s authority to grant a sanction must yield to its responsibility to set aside unfair attorney-client transactions, we refuse to grant Moneo the dismissal he seeks.

The unfairness of the transaction, and this court’s duty to set it aside, is made even more clear in light of the Code of Professional Responsibility. This court has found the Canons of Ethics within the Code a relevant consideration in malpractice actions between attorney and client. (Coughlin v. SeRine (1987), 154 Ill. App. 3d 510, 507 N.E.2d 505; Rogers v. Robson, Masters, Ryan, Brumund & Below, (1979), 74 Ill. App. 3d 467, 392 N.E.2d 1365, aff'd (1980), 81 Ill. 2d 201, 407 N.E.2d 47; see also Klaskin, 126 Ill. 2d at 396, 534 N.E.2d at 979 (“An attorney who deals with a client *** must comply with at least minimal standards of professional conduct”).) We believe it would be anomalous to find these same rules inapplicable in judging the fairness of an attorney-client transaction.

Rule 5 — 104(a) prohibits a lawyer from entering a business transaction with a client if they have conflicting interests therein and if “the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure.” (107 Ill. 2d R. 5 — 104(a).) Here, the initial assignment of Janus’ patent rights to Jisconi and Monco’s 50% interest therein allowed Moneo to deadlock Jisconi. At the same time as the assignment, Janus expected Moneo to exercise professional judgment on his behalf. Monco’s representation of Janus and his ownership interest in Jisconi cannot be reconciled, as Monco’s position in this case makes apparent. Janus was never informed on these matters, nor for that matter, of his right to expect under the Canons Monco’s zealous representation of his interests (107 Ill. 2d Canon 7) and Monco’s exercise of independent professional judgment on his behalf (107 Ill. 2d R. 5-101).

In summary, we conclude that the circuit court erred in dismissing Janus’ amended counterclaim. Although we have considered the issue, we do not at this time address the relief to which Janus is entitled under his counterclaim. First, the parties have not briefed this issue. Second, we believe the trial court is in a better position than this court to fashion a remedy consistent with this opinion after the reception of additional evidence and additional briefing if the court so desires.

The second issue we address relates to the circuit court’s denial of Monco’s petition for sanctions. Apparently, the parties do not agree on whether this motion is governed by section 2 — 611 of the Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par. 2 — 611) or by Supreme Court Rule 137 (134 Ill. 2d R. 137). These two rules are the same except that Rule 137 provides that a circuit court “may” impose sanctions for violations of the rule while section 2 — 611 provides that sanctions “shall” be imposed. Janus contends that this difference impacts this court’s review because Rule 137 gives a circuit court even more discretion in ruling on a petition for sanctions.

In this case, the subject of Monco’s sanctions motion is Janus’ amended counterclaim filed in November 1987. Because the effective date of Rule 137 was August 1, 1989, it does not apply to Janus’ pleading. (In re Petition of Village of Kildeer to Annex Certain Territory (1989), 191 Ill. App. 3d 713, 719 n.1, 548 N.E.2d 654, 657 n.1, aff'd (1988), 124 Ill. 2d 533, 530 N.E.2d 491; People ex rel. Village of Buffalo Grove v. Village of Long Grove (1990), 199 Ill. App. 3d 395, 417, 557 N.E.2d 643, 658.) Accordingly, Monco’s motion is governed by section 2 — 611, which provides in part:

“The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. *** If a pleading, motion, or other paper is signed in violation of this Section, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction ***.” Ill. Rev. Stat. 1987, ch. 110, par 2-611.

Before turning to the merits of Monco’s petition, an issue is presented as to whether Monco’s motion for sanction names the proper parties as defendants. Monco’s motion names Janus, Marvin Benn and the law firm of Hamman & Benn. Relying on section 2 — 611 and Pavelic & LeFlore v. Marvel Entertainment Group (1989), 493 U.S. 120, 107 L. Ed. 2d 438, 110 S. Ct. 456, Janus contends that the only proper defendants in a section 2 — 611 petition are the client and the attorney signing the pleading in question. Accordingly, Janus contends that the only proper defendants in this case are himself and Dawn Cassie, the attorney who signed the amended counterclaim. Moneo responds that Janus asserts this argument for the first time on appeal and that the proper parties have been named.

Rule 11 of the Federal Rules of Civil Procedure and section 2 — 611 are virtually identical. Therefore, Federal court interpretation of Rule 11 matters may be used as guidance in section 2 — 611 matters. (Chicago Title & Trust Co. v. Anderson (1988), 177 Ill. App. 3d 615, 621, 532 N.E.2d 595, 599.) As with section 2 — 611, Rule 11 provides that a sanction for a violation of the rule shall be imposed upon the “person who signed” the pleading in question, or the represented party, or both. In Pavelic, the Supreme Court addressed the issue of whether the phrase “person who signed” limits the people against whom a fine may be imposed to the signing attorney or whether his law firm may also be fined. The Court, using a plain meaning approach to interpreting the rule, concluded that only the attorney who actually affixes his name to the pleading in question is subject to fine, even though that attorney signs on behalf of the entire law firm.

14 We find Pavelic persuasive. In this case, it is undisputed that Dawn Cassie is the only attorney who signed the amended counterclaim. Admittedly, Marvin Benn and the firm of Hamman & Benn have played a significant role on behalf of Janus in prosecuting the counterclaim. Under Pavelic, however, only signing parties are liable; Marvin Benn nor the law firm are such parties. As for the issue of waiver, while a party can waive arguments raised for the first time on appeal (e.g., People ex rel. Wilcox v. Equity Funding Life Insurance Co. (1975), 61 Ill. 2d 303, 313, 335 N.E.2d 448, 453), a party cannot waive the authority of the appellate court to affirm on any ground appearing in the record. (Keck v. Keck (1974), 56 Ill. 2d 508, 514, 309 N.E.2d 217, 220; Redd v. Woodford County Swine Breeders, Inc. (1977), 54 Ill. App. 3d 562, 565, 370 N.E.2d 152, 154.) Accordingly, we affirm the circuit court’s denial of Monco’s motion for sanctions on the ground that only Janus was properly named as a defendant. In any event, because dismissal under this analysis is only partial, we address the merits of Monco’s appeal.

To support his section 2 — 611 argument, Moneo directs this court’s attention to five allegations of fact within Janus’ amended counterclaim which Moneo alleges are false and reflect little or no investigation:

“3. In 1984, Janus consulted with Monco with regard to applying for a patent for one of Janus’ ideas, the Joggers’ Aid. Monco was very enthusiastic about the invention and expressed interest in providing all legal services necessary for pursuing a patent for the invention in exchange for an interest in the patent.
* * *
7. Monco was Janus’ sole legal counsel from 1984 through mid-1986, when Janus decided to consult another attorney.
* * *
9b. Monco insisted [in violation of the Code of Professional Responsibility] upon being a 50% shareholder in JI-SCO-NI Corporation, an excessive fee for such legal services.
* * *
9f. Janus was induced to sign the CIP [application] upon Monco’s assurances that this was in Janus’ and JI-SCO-NI’s best interests and that Moneo was so entitled in light of his contributions.” (Emphasis added.)

We find that Monco’s motion for sanctions was properly dismissed. Initially, Monco’s appeal must be taken in light of the circuit court’s findings and this court’s affirmance that an attorney-client relationship existed between Moneo and Janus; that Moneo failed to make a full and fair disclosure of all relevant information to Janus before obtaining the initial assignment; and that Moneo did not give adequate consideration for his interest in Jisconi. These findings of fact lean heavily against Monco’s assertion that Janus’ counterclaim was not “well grounded in fact” as required by section 2 — 611.

Additionally, Monco’s appeal must be taken in light of the burden of proof and standard of review in section 2 — 611 actions. In order for a movant to prevail under section 2 — 611, he must prove that the allegations contained in a pleading were false and that the pleader did not have reasonable cause to believe the allegations were true when made. (Peoples Gas Light & Coke Co. v. Black Steer Provision Co. (1985), 131 Ill. App. 3d 387, 390, 475 N.E.2d 1012, 1015.) The party opposing the motion need not present any proof as to the truthfulness or reasonableness of the allegations until the movant has sustained his burden of proof. (Peoples Gas, 131 Ill. App. 3d at 391, 475 N.E.2d at 1016.) As for the standard of review, rulings on section 2 — 611 motions will not be reversed absent an abuse of discretion. Perlman v. Time, Inc. (1985), 133 Ill. App. 3d 348, 478 N.E.2d 1132.

In this case, Moneo has not shown an abuse of discretion, falsity, or the lack of reasonable inquiry. For example, the allegations of paragraph 3 have support in the record. Janus testified that prior to the kitchen table meeting, he had consulted with Moneo regarding the patentability of other ideas. After some preliminary work by Moneo, Janus accepted Monco’s advice that these ideas should not be pursued. Regarding the kitchen table meeting, Janus testified he went to Moneo as he had the prior two times. The discussion which ensued was lengthy and covered a broad number of topics. Considering that Moneo was a patent attorney who had advised Janus on the patent-ability of prior ideas, it is very realistic to characterize the kitchen table discussion as covering the topic of patentability of the beverage container. Clearly, the allegation cannot be claimed as false or not well grounded in fact.

Similarly, as for the other allegations in paragraph 3, Moneo testified that he would provide free legal services to the venture and that he agreed to become a one-half owner of the business. Again, the allegation that Moneo agreed to provide free legal services in exchange for his interest in the patent is well grounded in fact.

As for the allegations in paragraphs 9b and 9f, Janus testified that Monco indicated he would not accept anything less than a 50% interest in Jisconi. His conduct throughout the parties’ relationship and his position in this case are consistent with his insisting on a 50% interest. Moneo also testified regarding the CIP application that the patent laws required his name to appear on the application because he had contributed ideas to the invention. He testified that he conveyed this information to Janus; Janus testified that he followed this advice. Accordingly, Janus’ use of the word “inducement” is neither false nor reflects the lack of reasonable inquiry.

Finally, as for paragraph 7, Moneo again has shown no section 2— 611 violation. Admittedly, Janus’ deposition and trial testimony reflect that Janus’ consultations with attorney Dvorak began as early as February 1986. In addition, Janus testified that he consulted other, non-patent attorneys regarding personal matters prior to February 1986. Thus, Moneo was not Janus’ exclusive attorney until “roid-1986.” This discrepancy, however, does not embrace a violation of section 2— 611. Again, Janus’ counterclaim must be taken in light of the circuit court’s overall finding in favor of Janus and against Moneo. Moreover, although Janus can be considered in hindsight to be foolish in this belief, he felt in his own mind that Moneo was his attorney throughout the duration of this transaction or at least was looking out for his interests. Thus, in Janus’ mind, and at the very least, Moneo was his “sole legal counsel” through mid-1986. This allegation has sufficient support in the evidence. Accordingly, we affirm the circuit court’s conclusion that neither Janus nor his counsel violated section 2 — 611.

As for Monco’s assertion that sanctions are nonetheless proper as a result of improper threats made by Janus’ counsel to settle the litigation, it too is without merit. Monco’s assertion is predicated upon a May 1987 letter from Marvin Benn to Monco. We have reviewed this letter and note that it simply makes no threat of disciplinary action. Moreover, Janus’ counterclaim, which seeks to set aside a transaction resulting from undue influence, can in no way be construed as reflecting an improper purpose.

For the foregoing reasons, we affirm the circuit court’s denial of Monco’s motion for sanctions, but reverse the dismissal of Janus’ counterclaim. Because of the conclusion reached on the sanctions issue, Janus’ appeal regarding the three affidavits will not be addressed.

Affirmed in part; reversed in part and remanded.

MANNING, P.J., and CAMPBELL, J., concur.

      Aside from the facts essential to our legal analysis, we believe it important to note that, during the winter, spring and summer months of 1986, Moneo and Janus pursued Jisconi matters with great effort, enthusiasm and cooperation. Some of the more significant accomplishments were the manufacturing of different prototypes, the preparation of a 60-page marketing report and the contact of a large soft-drink concern as a potential purchaser. Other accomplishments occurred but they are too numerous to recount in full detail. As explained later, this era of cooperation and enthusiasm ultimately ceased and deadlock occurred.

      We reject Janus’ assertion that the circuit court misapplied the McFail factors. All three factors were resolved against Moneo and, but for the defense of ratification, the undue influence analysis would cease. Ratification is an affirmative defense which seeks to affirm an otherwise invalid transaction based on independent, affirmative grounds. Thus, the fact that one or all three McFail factors were not met does not foreclose a ratification analysis; rather, the ratification defense presupposes such deficiency in an attorney’s proof.


source: Caselaw Access Project

author: JUSTICE LaPORTA

license: Public Domain

text:
    DOMINIC SENESE, Plaintiff-Appellant, v. CLIMATEMP, INC., et al., Defendants-Appellees.
    First District (6th Division)
    No. 1—90—3253
    Opinion filed October 11,1991.

      Murphy & Boyle, Chartered, of Chicago (Robert D. Boyle, Mark R. Valley, and James P. Boyle, of counsel), for appellant.

      Lillig & Thorsness, Ltd., of Oak Brook (Richard J. Nogal and Amy Remington Jennings, of counsel), for appellees.
   JUSTICE LaPORTA

delivered the opinion of the court:

Plaintiff filed suit against defendants alleging they violated the Business Corporation Act of 1983 (Ill. Rev. Stat. 1987, ch. 32, par. 1.01 et seq.) when they denied him his right as a shareholder to inspect corporate books and records. Plaintiff sought declaratory relief, a constructive trust and mandamus. Defendants moved to dismiss plaintiff’s amended complaint, contending plaintiff failed to state a cause of action on each count and that plaintiff was not a shareholder of record and therefore had no right to inspect the books and records. The trial judge granted defendants’ motion. Plaintiff appealed.

Plaintiff alleges multiple errors on the part of the trial judge. Plaintiff alleges the trial court erred in determining issues of fact based upon its mistaken belief that questioned documents, attached as exhibits to the complaint, are always controlling over possible contrary allegations in the complaint. Plaintiff alleges the trial court erred in not striking defendants’ “hybrid” motion which challenged both the legal insufficiency of the complaint and asserted the affirmative matters of laches and standing. Plaintiff alleges the trial court erred in finding his complaint did not state a cause of action for declaratory judgment, constructive trust and mandamus; erred in dismissing the amended complaint based upon the doctrine of laches and standing; erred in barring plaintiff’s discovery requests; and erred in denying plaintiff leave to file a second amended complaint.

The facts in the case are circuitous. In September of 1989 plaintiff filed a complaint for mandamus and other relief against Climatemp, Inc., John W. Comforte and Thomas E. Comforte in an effort to compel production of corporate minute books and shareholder record books. Plaintiff alleged he was a stockholder of Climatemp, Inc., and that the Business Corporation Act of 1983 (Ill. Rev. Stat. 1987, ch. 32, par. 7.75) gave him the right, upon written demand and for a proper purpose, to examine corporation books and records. Plaintiff sought review of the books as part of his estate planning. Plaintiff asked the court for a writ of mandamus, and an order on defendants to produce the corporate minute books and shareholder records for Climatemp, Inc., formerly Broadway Sheet Metal Works, Inc.

Defendants filed a motion to dismiss pursuant to section 2— 619(a)(2) of the Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par. 2 — 619(a)(2)), contending that plaintiff was not a “holder of record of shares in a corporation” as required by the Business Corporation Act of 1983 (Ill. Rev. Stat. 1987, ch. 32, par. 1.80(g)) and therefore he had no right to inspect the corporation’s books and records. With the motion, defendants filed an affidavit by corporate treasurer Thomas E. Comforte denying plaintiff’s stock ownership.

Plaintiff filed a motion to strike Comforte’s affidavit and filed a response in opposition to defendants’ motion to dismiss. Plaintiff’s response included a copy of the 1958 articles of incorporation for Broadway Sheet Metal Works, Inc., listing plaintiff as an incorporator and director, and a copy of the 1960 amendment to the articles, changing the name of the company to Climatemp, Inc.

Defendants then filed a reply in support of their motion to dismiss which included several exhibits purporting to establish that plaintiff had indeed sold his stock. Defendants contended plaintiff had sold his 50 shares of Broadway Sheet Metal Works, Inc., stock to Expressway Terminals, Inc., on January 4, 1960. Defendants’ exhibits included a purported transfer of stock letter of intent, plaintiff’s cancelled stock certificates although no signature appeared on the back, corporate ledgers memorializing the stock transfer and minutes of a special shareholder meeting where plaintiff resigned as a director and officer of Broadway Sheet Metal Works, Inc. The minutes referred to “L.A. Moody [an incorporator and original stockholder] and Expressway Terminals, Inc.,” as “all of the shareholders.” Plaintiff’s signed resignation was also an exhibit.

The undated letter of intent to assign stock from plaintiff to Expressway Terminals, Inc., stated that “[fjormal contract relating to this purchase, with arrangements for holding of shares of stock in escrow by Halfpenny & Hahn, shall be drawn up and executed not later than May 1, 1960.” No evidence of the formal contract was included in any of the pleadings.

Plaintiff moved for leave to file a supplemental response, indicating that he needed time for limited discovery to address defendants’ allegation that plaintiff had transferred his stock. In addition, plaintiff moved to join Victor Comforte as an additional defendant; that motion was granted.

On March 14, 1990, the trial judge granted defendants’ section 2 — 619 motion to dismiss and granted plaintiff leave to file an amended complaint. The court explained that plaintiff had failed to satisfy the standing requirement and therefore had no right to discovery.

The court stated: “[p]laintiff has failed to adequately demonstrate his standing to bring this action that is a prerequisite of what essentially is a discovery cause of action. There is no reason why plaintiff should need discovery limited or otherwise in order to reasonably set forth allegations as to why he believes he is at present a stockholder of Climatemp, Inc. In order to permit the plaintiff to set forth his version of events, demonstrate his continued status as a shareholder, if he is able to do so, this court will grant the motion to dismiss. The plaintiff will be given 28 days to file a complaint with specificity, setting forth your standing. You will have 28 days to answer or otherwise plead. Now, start with a clean slate and show me where you stand.”

Plaintiff’s amended complaint for declaratory judgment, constructive trust and mandamus admitted plaintiff had signed a letter of intent to assign his stock to Expressway as part of a move to give the company more borrowing power. Plaintiff denied that a formal contract was ever drawn up or signed or that he was ever paid for his shares. Plaintiff sought a declaration by the court as to the effect of the letter of intent and plaintiff’s ownership interest in Climatemp, Inc. Plaintiff also sought a constructive trust and mandamus to compel production of corporate records. Attached to Senese’s first amended complaint as exhibits were copies of the articles of incorporation for Broadway Sheet Metal Works, Inc.; a 1959 annual report for Broadway Sheet Metal Works, Inc.; articles of amendment to the articles of incorporation of Broadway Sheet Metal Works, Inc., changing the company name to Climatemp, Inc.; a letter of intent to assign stock from Senese and Comforte to Expressway Terminals, Inc.; a 50-share stock certificate in Broadway Sheet Metal Works, Inc., with Senese’s name on it and the word “cancel” written over the top; the back of the stock certificate; an undated assignment separate from the certificate which appears to bear plaintiff’s signature; a 50-share stock certificate in Broadway Sheet Metal Works, Inc., with Expressway Terminals, Inc.’s name on it and the word “cancelled” written over the top; a letter by Senese demanding that he be allowed to view corporate records; and a letter by the corporate attorney refusing that request.

Defendants then filed a section 2 — 615 motion to dismiss the amended complaint, alleging that (1) each count of the complaint failed to state a cause of action, (2) plaintiff had no standing to file the complaint because he was not a stockholder, and (3) plaintiff was barred by laches because he had not asserted a right of stock ownership in the 30 years prior to commencing the suit. Defendants’ motion to stay discovery was granted on August 13, pending resolution of defendants’ section 2 — 615 motion.

On September 24, 1990, the trial judge granted defendants’ section 2 — 615 motion to dismiss. The court found: (a) the complaint was barred on its face by laches; (b) the complaint failed to adequately allege the plaintiff’s standing; (c) count I failed to state a claim for declaratory judgment; (d) count II failed to state a claim for constructive trust; and (e) count III failed to state a claim for mandamus.

Initially the September 24 order granted plaintiff leave to file a second amended complaint. The trial judge subsequently granted defendants’ motion to reconsider that portion of the September 24, 1990, order and on October 16, 1990, the trial judge dismissed plaintiff’s first amended complaint with prejudice. Plaintiff appealed the trial judge’s orders entered in 1990 on March 14, August 13, September 24 and October 16.

On appeal we consider plaintiff’s contention that the trial court erred in determining issues of fact based upon its mistaken belief that documents attached as exhibits are always controlling over contrary allegations in the complaint.

Plaintiff argues that the trial judge erred when he accepted as true the letter of intent to assign his stock, which was attached to plaintiff’s first amended complaint. Plaintiff contends that the trial court mistakenly relied on the truth of the exhibits attached to the complaint as though they were attached in support of and as the basis for plaintiff’s claim as alleged in the complaint in compliance with section 2 — 606 of the Illinois Code of Civil Procedure. Under section 2— 606, “[i]f a claim or defense is founded upon a written instrument, a copy thereof *** must be attached to the pleading as an exhibit or recited therein, unless the pleader attaches to his or her pleading an affidavit stating facts showing that the instrument is not accessible to him or her. In pleading any written instrument a copy thereof may be attached to the pleading as an exhibit. In either case the exhibit constitutes a part of the pleading for all purposes.” Ill. Rev. Stat. 1987, ch. 110, par. 2 — 606.

Plaintiff contends that his lawsuit was not “founded upon” the letter of intent to assign his stock or on any of the other exhibits attached to his complaint. He contends the exhibits were attached to show his intent, but not to show that the transaction had occurred. He argues that the exhibits were attached to the amended complaint only to satisfy the trial judge’s directive, after the dismissal of his initial complaint. The first amended complaint makes that clear when it states on page 4: “[t]he only information ever submitted to plaintiff by VICTOR COMFORTS relating to how DOMINIC SENESE purportedly lost his ownership interest in CLIMATEMP, INC. was set forth in the Reply Memorandum in Support of Motion to Dismiss With Prejudice and for Sanctions, together with exhibits. *** Such documents included *** the Letter of Intent Agreement, an assignment separate from stock certificate for 50 shares to Expressway Terminal, Inc. which was uncompleted, *** Copies of said documents are attached hereto, marked ‘Group Exhibit D’, and made a part hereof. Serious discrepancies in the records exist.”

Plaintiff contends that he attached the exhibits in an effort to fully explain why he signed the letter of intent but then “never followed through on it.” Plaintiff argues that the trial court gave undue weight to the exhibits attached to his complaint. At the September 24 hearing on defendants’ motion to dismiss, the trial court stated: “Count 1, the plaintiff *** completely failed to respond [to] or to refute the fact that he has no standing to bring an action based upon the alleged shareholders rights. You have appended the assignment and you are bound by that exhibit.”

Plaintiff argues that exhibits attached to a complaint negate conflicting allegations in the complaint only if they are the instruments on which a claim is founded (Ill. Rev. Stat. 1987, ch. 110, par. 2 — 606) but do not negate allegations if they are merely evidentiary in nature and not the instrument sued upon. (Coupon Redemption, Inc. v. Ramadan (1987), 164 Ill. App. 3d 749, 756, 518 N.E.2d 285.) To find otherwise, plaintiff argues, would prevent plaintiffs from attaching to a complaint any contested will, contract or deed that plaintiffs allege is false.

In McCormick v. McCormick (1983), 118 Ill. App. 3d 455, 460, 455 N.E.2d 103, the appellate court found the trial court erred when it relied on section 2 — 606, then numbered section 36, to admit as true all exhibits attached to plaintiff’s complaint. The appellate court found that the trial court had improperly relied on the truth of exhibits attached to plaintiff’s complaint when in fact the exhibits were attached by way of examples in support of the allegations, but not as documents upon which the claim was founded. The court stated: “The trial court erred in determining the legal sufficiency of the complaint by comparing the factual allegations of the complaint with inferences the court made after reviewing the numerous exhibits.” McCormick, 118 Ill. App. 3d at 461.

Defendants argue that the trial court never directed plaintiff to attach to his complaint the letter of intent to assign stock. Defendants contend that section 2 — 606 is controlling and that when plaintiff attached the letter of intent to assign stock it became part of the pleading and was to be taken as true on a section 2 — 615 motion to dismiss. Defendants contend the letter of intent should be considered by the court as a legal instrument such as a trust document, affidavit or public file which would control over inconsistent allegations of facts. McCormick, 118 Ill. App. 3d at 459-60.

Defendants argue that where the language of a pleading is at variance with the recitals of a document attached to or made a part of such pleadings the recitals in the documents prevail. (Jones v. McCollen (1967), 85 Ill. App. 2d 375, 380-81, 227 N.E.2d 788.) Defendants cite other cases for the proposition that exhibits control over allegations in the complaint. Friedman v. Gingiss (1989), 182 Ill. App. 3d 293, 296, 537 N.E.2d 1067 (condominium rules and declaration attached as exhibit control over conflicting allegations in the pleading); Ford v. University of Illinois Board of Trustees (1977), 55 Ill. App. 3d 744, 746-47, 371 N.E.2d 173 (exhibits detailing interim grievance policy as determined by the chancellor would control over allegations in complaint about express provisions in the policy); Wilbur Waggoner Equipment Rental & Excavating Co. v. Johnson (1975), 33 Ill. App. 3d 358, 361, 342 N.E.2d 266 (court looks to the document itself and not to the allegation in the complaint to determine the sufficiency of a notice of lien attached as an exhibit).

Plaintiff’s complaint alleged that: (1) plaintiff was an original and is a current shareholder of Climatemp, Inc., stock; (2) plaintiff signed a letter of intent agreement to sell his stock to Expressway Terminals, Inc., sometime prior to May 1, 1960; and (3) the letter of intent agreement was “never effectuated,” no formal contract was signed, no stock was transferred and no money was paid for the shares.

We find that plaintiff’s complaint is not “founded upon”- the exhibits attached and consequently section 2 — 606 does not apply. Plaintiff’s complaint provides the explanation for why he attached the exhibits to his first amended complaint. Plaintiff’s complaint alleges that on information and belief Comforte bases his opposition to plaintiff’s claim on the documents attached to defendant’s reply memorandum in support of his motion to dismiss with prejudice and that those attachments provided plaintiff with the only explanation ever provided for how he “purportedly lost his ownership interest in CLIMATEMP, INC.” He does not adopt the exhibits as authentic nor does he agree with Comforte’s contentions.

We find that the letter of intent agreement does not conflict with the pleadings in plaintiff’s complaint. Plaintiff alleged he owned stock, agreed to sell his stock and that that agreement was never consummated. The attached exhibits show plaintiff as an original stockholder in the company and show plaintiff’s signature on an agreement to sell his stock. A letter of intent demonstrates only that the signer intends to do something in the future. No exhibit establishes whether the parties complied with the conditions precedent to the sale, i.e., to pay $1,000 down payment and the balance over 10 years, to draw up a formal contract by May 1, 1960, or that Halfpenny & Hahn held the stock in escrow until the sale was completed. Defendants point to the assignment separate from certificate as proof of the sale; however, plaintiff has alleged that the assignment is incomplete, undated and not witnessed and that the transfer agreement was never consummated.

We find the trial judge erred in his reliance on the exhibits in plaintiff’s complaint and found them dispositive on the question of plaintiff’s contention that he is a current stockholder.

Next we must determine whether the court properly entertained defendants’ section 2 — 615 motion to strike and dismiss plaintiff’s complaint. After plaintiff filed his first amended complaint, defendants filed a section 2 — 615 motion that contended plaintiff failed to state a cause of action on each of the three counts, had no standing to bring suit, and was barred by laches.

Plaintiff contends on appeal that the trial court should have stricken the motion because it included affirmative defenses of standing and laches, properly addressed in a section 2 — 619 motion. In the alternative, plaintiff argues that the trial court improperly considered standing and laches, as well as exhibits attached to defendants’ initial response, when ruling on the section 2 — 615 motion.

A motion for dismissal of a complaint for failure to state a cause of action under section 2 — 615 must specify where the pleading is legally insufficient. The motion admits all well-pleaded facts in the complaint. Factual defenses are not available under section 2 — 615. The court may consider only the allegations in the complaint and may not consider supporting affidavits offered by the movant. MBL (USA) Corp. v. Diekman (1985), 137 Ill. App. 3d 238, 241, 484 N.E.2d 371.

Defendants argue that their motion was properly brought under section 2 — 615 and that a trial court can consider both affirmative defenses of standing and laches under section 2 — 615. Defendants contend that, in any event, the mislabelling of a motion is not fatal to the motion. Illinois Housing Development Authority v. Sjostrom & Sons, Inc. (1982), 105 Ill. App. 3d 247, 253, 433 N.E.2d 1350, 1355.

We find the trial judge clearly articulated his intention to rule on defendants’ section 2 — 615 motion without consideration of affirmative defenses. He did so when he ruled that each of the three counts failed to state a cause of action.

Next, plaintiff contends the trial court erred when it ruled he did not state a cause of action for declaratory judgment. The parameters for declaratory judgment are few. The court may, in cases of actual controversy, make binding declarations of rights having the force of final judgments under section 2 — 701(a) of the Illinois Code of Civil Procedure. (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 701(a).) The court shall refuse to enter a declaratory judgment or order if it appears that the judgment or order would not terminate the controversy or some part thereof giving rise to the proceeding. Ill. Rev. Stat. 1989, ch. 110, par. 2 — 701(a).

A complaint states a cause of action for declaratory judgment if it recites in sufficient detail an actual and legal controversy between the parties and prays for a declaration of rights and, if desired, other legal relief. (Mid-Town Petroleum, Inc. v. Dine (1979), 72 Ill. App. 3d 296, 390 N.E.2d 428.) The actual controversy requirement is intended to distinguish present justiciable issues from abstract or hypothetical disputes where no present dispute is pending and requires resolution. (Alderman Drugs, Inc. v. Metropolitan Life Insurance Co. (1979), 79 Ill. App. 3d 799, 802, 398 N.E.2d 984.) The existence of another remedy does not preclude declaratory relief. Alderman, 79 Ill. App. 3d at 802.

Plaintiff contends he alleged an actual controversy existed over whether the letter of intent to sell his stock was consummated, thereby extinguishing his stock ownership. Plaintiff contends that because he did not proceed to transfer his shares in accordance with the undated letter of intent, he retained his shareholder interest in Climatemp, Inc., successor to Broadway Sheet Metal Works, Inc., and that the purported transfer on the corporate books was improper. Plaintiff contends his amended complaint sufficiently alleged his ownership interest in Climatemp, Inc., the fraudulent misappropriation of his shares and the improper denial of his right to inspect the corporate books and records.

Defendants contend plaintiff should have pursued a cause of action against Expressway Terminal, Inc., the company that allegedly was involved in the purchase of stock. Defendants contend plaintiff’s cause of action cannot stand because plaintiff failed to include Expressway Terminals, Inc., as a necessary party defendant to the action. Further, defendants contend they are not a necessary party to the declaratory judgment action. A director or officer of a corporation may be a trustee for stockholders for certain purposes, but not for all purposes and not to the extent of protecting stockholders in their dealings with third persons. Anchor Realty & Investment Co. v. Rafferty (1941), 308 Ill. App. 484, 498-99, 32 N.E.2d 394.

Declaratory judgment is appropriate to determine existing rights (Gagne v. LaGrange (1976), 36 Ill. App. 3d 864, 868, 345 N.E.2d 108), but such an action may be dismissed where a party seeks to enforce his rights after the fact. Goldberg v. Valve Corp. of America (1967), 89 Ill. App. 2d 383, 392, 233 N.E.2d 85.

We believe the trial court properly dismissed plaintiff’s complaint for declaratory judgment. Plaintiff’s complaint and attached exhibits challenge a stock transaction between plaintiff and Expressway Terminals, Inc., that allegedly occurred 30 years ago. The central purpose of the declaratory judgment procedure is to allow the court to address a controversy one step sooner than normal after the dispute has arisen but before steps are taken which would give rise to a claim for damages or other relief. (Tait v. County of Sangamon (1985), 138 Ill. App. 3d 169, 170, 485 N.E.2d 558.) In addition, Expressway Terminals, Inc., clearly is a necessary party to any action invalidating its alleged stock purchase.

Plaintiff next alleges the court erred when it dismissed his constructive trust claim. A constructive trust can be imposed where there is a breach of a fiduciary duty or when fraud is proven. (Sadacca v. Monhart (1984), 128 Ill. App. 3d 250, 255, 470 N.E.2d 589.) Where no fraud exists, the court can still impose a constructive trust when equity and good conscience dictate it is appropriate (Selmaville Community Consolidated School District No. 10 v. Salem Elementary School District No. 111 (1981), 96 Ill. App. 3d 1062, 1066, 421 N.E.2d 1087), as in the case of duress, coercion or mistake. Suttles v. Vogel (1988), 126 Ill. 2d 186, 533 N.E.2d 901.

Plaintiff contends he adequately pleaded fraud when he alleged that the “de facto chief executive officer” of Climatemp, Victor Corn-forte, asserted in his affidavit that plaintiff had no ownership interest in Climatemp. Plaintiff contends his first amended complaint included allegations of fraud concerning the handling by Climatemp and its officers of plaintiff’s stock certificates, the corporate stock ledger sheet and the lack of documents that would verify plaintiff had transferred his stock to another. Plaintiff alleged that these and other “highly suspect discrepancies” are evidence of Comforte’s acts of misappropriation done with the “intent to defraud.”

Plaintiff argues that fraud may be inferred from the nature of the acts complained of (Majewski v. Gallina (1959), 17 Ill. 2d 92, 100, 160 N.E.2d 783) and that all evidence need not be proven at this stage. Plaintiff contends he has alleged the fraud in that he was a holder of company stock and Victor Comforte is contending plaintiff is not now a holder of company stock. Plaintiff cites Holmes v. Birtman Electric Co. (1960), 18 Ill. 2d 554, 165 N.E.2d 261, where the court stated: “Generally speaking, the officers of a corporation may rightfully refuse, for the time being, a requested registry of stock when notified to do so by a third person, who claims some interest in the stock, which might be lost or injuriously affected by the transfer ***.” (Holmes, 18 Ill. 2d at 560.) Plaintiff contends individuals in control of a corporation owe a fiduciary duty to the corporation and to its shareholders. Coduti v. Hellwig (1984), 127 Ill. App. 3d 279, 292, 469 N.E.2d 220.

Defendants contend plaintiff’s complaint is nothing more than conclusory statements alleging no acts of fraud on the part of any defendants. In addition, defendants contend plaintiff has failed to allege any facts to indicate a breach of fiduciary duty by any defendants. In an action for a constructive trust, the complaint must allege a fiduciary relationship existed and must allege facts charging actual or constructive fraud. Perry v. Wyeth (1962), 25 Ill. 2d 250, 253, 184 N.E.2d 861.

We believe the trial court properly dismissed plaintiff’s action alleging constructive trust but that plaintiff should be allowed an opportunity to amend following limited discovery. The alleged stock transfer between plaintiff and Expressway Terminals, Inc., was documented on the books of the corporation. Plaintiff has alleged a fraud occurred in which defendants participated, and has alleged that the corporate officers and directors breached their fiduciary duty and participated in a fraud perpetrated on plaintiff. While defendants as directors and officers and the corporation itself are not obligated to oversee and protect shareholders from outside stock deals, they are obligated to require conclusive documentation that the parties have concluded the sale and that the purchaser is entitled to stock ownership.

Plaintiff cites Holmes in opposition to the motion. In Holmes, the court found the directors and officers acted inappropriately after an allegedly fraudulent stock sale was brought to their attention before a stock transfer took place on the corporate ledger. Here plaintiff has not alleged he notified the corporation directors and officers at any time to put them on notice that Expressway Terminals, Inc., was improperly claiming shareholder rights nor has he alleged any facts to support his allegation that corporate officers and directors somehow participated in his lack of stockholder status. Plaintiff contends he must be allowed limited discovery to elicit facts necessary to support such allegations.

Plaintiff has alleged only conclusory statements about Victor Comforte’s alleged fraudulent activities. Plaintiff alleged merely that he owned stock and Victor Comforte now contends he does not. Fraud must be proven; it cannot be presumed. (Majewski v. Gallina (1959), 17 Ill. 2d 92, 99, 160 N.E.2d 783, 788.) Plaintiff has not alleged sufficient facts in support of a fraud which would merit imposition of a constructive trust but should be permitted discovery and the opportunity then to amend his complaint to correct its deficiencies.

Plaintiff contends next that the trial court improperly dismissed his complaint for failure to state a cause of action for mandamus under section 7.75(b) of the Business Corporation Act of 1983. The Act provides that any shareholder may examine corporate books and records upon written demand if made for a proper purpose. (Ill. Rev. Stat. 1989, ch. 32, par. 7.75(b).) Plaintiff argues that his complaint identifies him as a shareholder, shows he made a demand and explains that the “proper purpose” was for estate planning.

Defendants argue that plaintiff has failed to establish that he is a shareholder of record and therefore the trial court properly denied his request. On a motion to dismiss, plaintiff need not prove his case, but rather must only establish a prima facie case, where all well-pleaded facts are taken as true. Mid-town Petroleum, 72 Ill. App. 3d at 298-99.

Plaintiff alleged that he purchased stock at the time of the company’s incorporation and that he “never transferred his shares.” Plaintiff explained his purpose in seeking the records and attached to the complaint a copy of his demand made to the corporation. On its face, plaintiff has pleaded a cause of action for mandamus in his amended complaint.

Plaintiff alleges next that the trial court erred when it ruled he had no standing because the issue of standing was not properly before the court on defendants’ section 2 — 615 motion. Plaintiff contends the trial court could not have decided the issue of his lack of standing to sue unless it first made the factual determination that plaintiff had indeed sold his stock, contrary to the allegations in his complaint. Determining the factual merits of a pleading instead of its legal sufficiency on a section 2 — 615 motion to dismiss is error. First Security Bank v. Bachleda (1987), 165 Ill. App. 3d 725, 729, 520 N.E.2d 660.

Defendants argue that plaintiff failed to allege adequately his standing as a stockholder of Climatemp, Inc., to refute the letter of intent attached to his complaint as an exhibit. Defendants argue that the Business Corporation Act of 1983 permits review of corporate books and records by “shareholders of record” (Ill. Rev. Stat. 1989, ch. 32, par. 7.75) and that plaintiff has not established he is a shareholder of record.

Defendants contend standing can properly be brought in a section 2 — 615 motion. (Sjostrom, 105 Ill. App. 3d at 253, 433 N.E.2d at 1355.) The court in Sjostrom considered whether standing was proper for a section 45 (now section 2 — 615) motion. The court noted that when a defendant brings affirmative matters in his motion to dismiss, the motion is properly brought under section 48 (now section 2 — 619). The court stated that such affirmative matters would be inappropriate for a section 45 motion; however, where a defendant pleads that the plaintiff has failed to establish all the essential elements for a cause of action, use of section 45 is appropriate. The court found the defendant’s challenge to plaintiff’s standing to be based on the fact of the complaint itself and therefore “the motions would have been proper if brought pursuant to section 45 of the Civil Practice Act.” Sjostrom, 105 Ill. App. 3d at 253, 433 N.E.2d at 1355.

We find the Illinois Supreme Court’s decision in Greer v. Illinois Housing Development Authority (1988), 122 Ill. 2d 462, 524 N.E.2d 561, to be more persuasive. The court in Greer stated that lack of standing is an affirmative defense and initially the plaintiff has no burden to plead and prove standing. Rather the defendant must plead and prove lack of standing as a defense to the claim. (Greer, 122 Ill. 2d at 494.) We believe plaintiff had no obligation to plead his standing at this juncture in the litigation and he need not allege facts to establish standing until lack of standing is properly raised as a defense. We conclude that raising the affirmative defense of lack of standing in a section 2 — 615 motion was improper.

Plaintiff next argues that laches does not apply to bar his complaint (1) because defendants have failed to show they were prejudiced by the delay, and (2) because laches is an affirmative defense not properly raised in a section 2 — 615 motion.

16 The defense of laches can be raised by a motion to dismiss if (1) an unreasonable delay appears on the face of the pleading, (2) no sufficient excuse for the delay appears or is pleaded, and (3) the motion specifically points out the defect. If these three elements are present, then the trial court may properly strike plaintiff’s complaint. (Hartsman v. Abboreno (1960), 18 Ill. 2d 467, 165 N.E.2d 338.) But a lapse in time, no matter how great, will not bar a suit on the ground of laches where an excuse is given for the delay which would make it inequitable to bar the cause of action. (Mitchell v. Simms (1979), 79 Ill. App. 3d 215, 219, 398 N.E.2d 211.) As a general rule, to charge a party with laches, it is essential that the party have knowledge of the facts upon which his claim is based yet fail to proceed in a timely manner. (Zegers v. Zegers, Inc. (1976), 38 Ill. App. 3d 546, 348 N.E.2d 210.) Without knowledge of the relevant facts, delay will not bar relief unless occasioned by a lack of diligence. Goin v. Eater (1982), 107 Ill. App. 3d 887, 891, 438 N.E.2d 234.

Plaintiff contends defendants must plead and prove not only unreasonable delay, but must also prove prejudice resulting therefrom. (Nancy’s Home of the Stuffed Pizza, Inc. v. Cirrincione (1986), 144 Ill. App. 3d 934, 941, 494 N.E.2d 795.) Though plaintiff cites Mogul v. Tucker (1987), 152 Ill. App. 3d 610, 504 N.E.2d 872, for the same proposition, we note that the court in Mogul found plaintiff had alleged a reasonable explanation for not filing his suit earlier.

In addition, plaintiff contends laches is purely an affirmative defense which cannot therefore be raised in a section 2 — 615 motion. Plaintiff cites to section 2 — 613(d) of the Code of Civil Procedure, which identifies and enumerates affirmative defenses: “such as payment, release, satisfaction, discharge, license, fraud, duress, estoppel, laches.” (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 613(d).) Plaintiff also cites to Mogul and Cundiff v. Unsicker (1983), 118 Ill. App. 3d 268, 454 N.E.2d 1089, which refer to laches as an affirmative defense.

Defendants argue that plaintiff has given no reasonable excuse in his complaint for his delay and that therefore the trial court was correct when it found the complaint was barred by laches. Defendants contend also that if plaintiff were permitted to pursue his claim now, they would be prejudiced because they would have to defend a charge of fraud on actions that allegedly occurred 30 years ago. Defendants contend they also would be prejudiced because plaintiff is now claiming 50% ownership in a business they have worked to build and which has produced income for the past 30 years.

Our analysis here must focus on whether the 30-year passage of time itself triggers the defense of laches. The appropriate question for review is whether the doctrine of laches can apply based on the allegations in the complaint itself, thereby making it a proper subject for a section 2 — 615 motion. Many cases refer to laches as an affirmative defense under section 2 — 619. As to raising laches as a basis in a section 2 — 615 motion, we believe the answer is found in People ex rel. Casey v. Health & Hospitals Governing Comm’n (1977), 69 Ill. 2d 108, 370 N.E.2d 499. In Casey, the court considered the application of laches under both sections 43 and 45, the predecessors to sections 2— 615 and 2-619.

The Casey court stated that where an unreasonable delay appears on the face of the complaint, plaintiff has an affirmative duty to set forth a valid excuse to explain the delay. The court stated: “[A]ccording to section 43(4) of the Civil Practice Act [citation], affirmative defenses, such as laches, ‘must be plainly set forth in the answer or reply.’ *** Where laches is apparent on the face of a complaint and plaintiff has allegedly failed to set forth a reasonable excuse for the delay, ‘there appears to be no reason why the defect cannot be raised by motion so long as the motion specifically points out the defect complained of’ [Citation.] *** [U]nder section 45(1) of the Civil Practice Act [citation], a party may, by motion, object to pleadings; but it is incumbent upon the moving party to ‘point out specifically the defects complained of’ in order to give plaintiffs the opportunity to file amended complaints to correct any deficiencies.” (Emphasis in original.) Casey, 69 Ill. 2d at 113-14, 370 N.E.2d at 501.

Casey clearly states that plaintiff has an affirmative duty to set forth a valid excuse for a 30-year delay. Whtere plaintiff failed to do so, as is the case here, defendant is entitled to raise the issue of laches in a section 2 — 615 motion to strike and dismiss as long as he specifically points out the defect. The plaintiff must then be allowed to amend his complaint to correct the deficiency.

Here defendants had the right to raise the laches defense in the section 2 — 615 motion, and the trial court properly reviewed plaintiff’s complaint in light of the laches doctrine. Plaintiff failed to set forth a reasonable excuse for his 30-year delay, and defendants properly argued laches and the prejudice they would suffer if plaintiff were allowed to pursue his complaint. The trial court stated on the record that “the complaint was barred by laches due to the plaintiff’s failure to allege any explanation for his 30-year delay in filing an action based upon alleged shareholder’s rights.” We find the trial court was correct when it found plaintiff’s complaint barred by laches but that plaintiff should be permitted to amend to allege facts which would explain the delay.

Plaintiff next contends the trial court erred when it barred plaintiff from engaging in any discovery, especially discovery concerning the questioned documents upon which the trial court relied in making its factual determination.

Supreme Court Rule 201(b) states, in pertinent part, “a party may obtain by discovery full disclosure regarding any matter relevant to the subject matter involved in the pending action, whether it relates to the claim or the defense of the party seeking disclosure or any other party” (134 Ill. 2d R. 201(b)) but “[t]he court may *** make a protective order as justice requires, denying, limiting, conditioning, or regulating discovery to prevent unreasonable annoyance, expense, embarrassment, disadvantage or oppression.” 134 Ill. 2d R. 201(c).

Discovery procedures were designed to be flexible and adaptable to the infinite variety of cases and circumstances appearing in the trial court. (Monier v. Chamberlain (1966), 35 Ill. 2d 351, 355, 221 N.E.2d 410.) A discovery request may properly be quashed where the trial court has before it sufficient information upon which to decide the defendant’s motion to dismiss. (Continental Grain Co. v. FMC Corp. (1975), 27 Ill. App. 3d 819, 327 N.E.2d 371.) A trial court’s broad discretionary power to restrict pretrial discovery will not be disturbed absent a manifest abuse of discretion. United Nuclear Corp. v. Energy Conversion Devices, Inc. (1982), 110 Ill. App. 3d 88, 104, 441 N.E.2d 1163.

We find the trial judge committed such an error here. Plaintiff alleged he was a stockholder and defendants denied the stock ownership. Exhibits attached to both plaintiff’s amended complaint and defendants’ answer included altered stock certificates, changed corporate records, strike marks over several official documents and other inconsistencies which beg for a clearer explanation. The purpose of discovery is to enable counsel to better prepare and evaluate their case. (United Nuclear, 110 Ill. App. 3d at 104.) We believe limited discovery will cast light on unclear portions of the complaint and on the circumstances surrounding the creation of the challenged exhibits. For these reasons, we find the trial court abused its discretion in denying plaintiff’s discovery request.

Finally, plaintiff contends the trial court, after initially granting plaintiff leave to file a second amended complaint, erred in reversing its order thereby denying plaintiff leave to file a second amended complaint.

Under section 2 — 616 of the Code of Civil Procedure, a trial court can permit a litigant to amend a pleading at any time prior to final judgment. (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 616.) A trial court’s power to allow amendment should be fully exercised in order that a litigant can completely present his cause of action. (Giannini v. First National Bank (1985), 136 Ill. App. 3d 971, 988, 483 N.E.2d 924.) The decision to deny a request to amend is a matter within the sound discretion of the trial court. Pratt v. Sears Roebuck & Co. (1979), 71 Ill. App. 3d 825, 831, 390 N.E.2d 471, 476.

Before a trial judge can be found to have abused his discretion in denying a party leave to amend, it must be clear from the record that sufficient reasons or facts were presented to the trial judge and that his exercise of discretion is clearly contrary to the facts. Tishman Midwest Management Corp. v. Wayne Jarvis, Ltd. (1986), 146 Ill. App. 3d 684, 692, 500 N.E.2d 431; see also Intini v. Schwartz (1979), 78 Ill. App. 3d 575, 579, 397 N.E.2d 84, 87.

Plaintiff contends he was wrongly denied an opportunity to amend his complaint in light of the fact that his amended complaint was stricken based on arguments not previously raised. Plaintiff argues that under the rules articulated in Casey a plaintiff whose case is barred by laches should have an opportunity to amend to explain the apparent delay in bringing his claim.

Defendants argue that the trial court granted plaintiff an earlier opportunity to amend his complaint and on his second attempt he still could not state a cause of action. Defendants argue that plaintiff failed to preserve for review the denial of his motion for leave to amend.

The record establishes that on September 24, 1990, the trial court dismissed plaintiff’s amended complaint. Plaintiff sought and was granted leave to amend, citing Casey and noting that the laches argument was raised for the first time with respect to the amended complaint. On October 16, 1990, the trial court, ruling on defendants’ motion to reconsider, ruled that the September 24 dismissal was with prejudice. The court found that plaintiff had had two opportunities to plead standing and had failed twice. The court found that dismissal was warranted “separate and apart from the laches issue.”

We have previously concluded that the trial court erred in its premature ruling on plaintiff’s standing. Under the law enunciated in Casey, plaintiff’s complaint should not be dismissed with prejudice because barred by laches. We believe plaintiff persuasively argued for an amendment in that laches was raised for the first time when defendants moved to dismiss the first amended complaint. We believe plaintiff should have been given an opportunity to file a second amended pleading with regard to the mandamus action.

We find that the trial court: (1) improperly relied on exhibits attached to plaintiff’s complaint to determine material facts at issue; (2) did not err in refusing to strike defendants’ section 2 — 615 motion for failure to state a cause of action for declaratory judgment and constructive trust; (3) erred in dismissing plaintiff's complaint for failure to state a cause of action for mandamus; (4) ruled prematurely on the issue of plaintiff’s standing; (5) properly found plaintiff’s complaint was barred by laches on its face; and (6) improperly denied plaintiff’s motion to file a second amended complaint.

For the foregoing reasons we affirm in part, reverse in part and remand the case to the trial court to permit limited discovery as to the challenged exhibits, provide plaintiff an opportunity to further amend his complaint based on facts discovered and for further proceedings consistent with this opinion.

Affirmed in part, reversed in part and remanded.

RAKOWSKI, P.J., and McNAMARA, J., concur.