Bogan ex rel. Jackson Income Fund, L.P. v. Jackson Boulevard Capital Mgmt., Ltd.

Full title: ANN CUMMINS BOGAN and MOLLY CUMMINS DALEY, individually and on behalf of…

Court: APPELLATE COURT OF ILLINOIS FIRST DISTRICT THIRD DIVISION

Date published: Sep 13, 2017

2017 Ill. App. 16 (Ill. App. Ct. 2017)

Opinion

No. 1-16-0662

09-13-2017

ANN CUMMINS BOGAN and MOLLY CUMMINS DALEY, individually and on behalf of JACKSON INCOME FUND, L.P., Plaintiffs-Appellants, v. JACKSON BOULEVARD CAPITAL MANAGEMENT, LTD., JACKSON CAPITAL MANAGEMENT, L.L.C., and PAUL J. DUGGAN, Defendants-Appellees.

JUSTICE FITZGERALD SMITH delivered the judgment of the court.

NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1). Appeal from the Circuit Court of Cook County, Illinois, County Department, Law Division. No. 2014 L 11926 The Honorable Eileen O'Neill Burke, Judge Presiding. JUSTICE FITZGERALD SMITH delivered the judgment of the court.
Presiding Justice Cobbs and Justice Pucinski concurred in the judgment.

ORDER

Held: The trial court's judgment in favor of the defendants was not against the manifest weight of the evidence, where the testimony at trial established that the defendants had not breached their fiduciary duties to the plaintiffs, or induced any breach of such duties. ¶ 1 This cause of action arises from an action for breach of contract and breaches of fiduciary duty, filed by the plaintiffs, Ann Cummins Bogan (Bogan) and Molly Cummins Daley (Daley), individually and on behalf of the Jackson Income Fund, L.P. (the Jackson Income Fund or the fund), against the defendants, Jackson Boulevard Capital Management Ltd. (Jackson Boulevard), Jackson Capital Management L.L.C. (Jackson Capital) and Paul J. Duggan (Duggan). After a jury trial on the breach of contract claims, in which the jury returned a verdict in favor of the defendants, the trial court entered judgment in favor of the defendants on the breach of fiduciary duty counts. The plaintiffs now appeal only the judgment with respect to the breach of fiduciary duty counts. They contend that the trial court's findings were against the manifest weight of the evidence because several of the investment strategies employed by the defendants were made in contravention of the parties' agreement and in order to benefit the defendants, thereby constituting a breach of the defendants' fiduciary obligations. Specifically, the plaintiffs complain about the defendants' investments in: (1) collateralized debt obligations and trust preferred notes; (2) the production of a movie; and (3) several allegedly "self-dealing" loans. For the reasons that follow, we affirm.

I. BACKGROUND

¶ 2 The record before us reveals the following relevant facts and procedural history. It is undisputed that in 2005, the plaintiffs, who are sisters, invested money in the Jackson Income Fund. The Jackson Income Fund is a hedge fund, which was created by Jackson Boulevard in 2004. The fund is set up as a limited liability partnership, with investors as limited partners, and the defendant, Jackson Boulevard, as the general partner, responsible for all investment and financial decisions. The defendant, Duggan, founded Jackson Boulevard and is Jackson Boulevard's president. He also founded Jackson Capital, which replaced Jackson Boulevard as the general partner of the Jackson Income Fund in 2008. ¶ 3 It is further undisputed that in order to invest money in the fund (i.e., purchase units in the fund) the plaintiffs were required to, and did execute a "Subscription Agreement and Power of Attorney" (the subscription agreement), which was attached to the Jackson Income Fund's "Confidential Private Offering Memorandum" (the memorandum), and which incorporated by reference a document titled "Agreement of Limited Partnership" (limited partnership agreement). These three documents govern the relationship between the parties to this appeal. Since the substance of the documents is undisputed, we set forth those provisions relevant to the resolution of the issues raised here by the parties. ¶ 4 The subscription agreement, provides that by executing the agreement, the subscribers "represent and warrant," inter alia, that they have "carefully read the memorandum, including the latest supplement thereto, *** and the agreement of limited partnership set forth as an exhibit to the memorandum," and understand "each of them," and are "cognizant of the risks of an investment in the units, and the substantial charges and significant conflicts of interest to which the partnership is subject." In addition, the subscribers represent and warrant that they have "no immediate need for liquidity with respect to the investment in the units" and acknowledge that "no public market is expected to develop for the units." By executing the agreement, the subscribers further represent and warrant that they understand, inter alia, that: (1) "investment in the units is risky;" (2) there are "no assurances that the partnership will realize any profits;" (3) "the redemption and transferability of the units is restricted;" (4) "any distributions are within the sole discretion of the general partner," so that the subscribers "have no right to demand any distributions;" and (5) "investment in the partnership has certain special federal income tax aspects" and the subscribers have "received advice from qualified sources" as they "deem necessary." ¶ 5 The memorandum, attached to the subscription agreement and referenced therein, addresses the structure and operation of the Jackson Investment Fund, the fund's goals, the use of proceeds raised, and the fund's trading guidelines. The beginning of the memorandum contains the following language, written in all capital letters:

"THE UNITS OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. *** THE SECURITIES OFFERED HEREBY HAVE NOT BEEN TRADED PRIOR TO THIS OFFERING AND SHOULD BE CONSIDERED ILLIQUID. *** THERE IS AND WILL BE NO PUBLIC MARKET FOR THE UNITS. *** THE PARTNERSHIP IS SUBJECT TO CERTAIN ACTUAL OR POTENTIAL CONFLICTS OF INTERST (SEE 'CONFLICTS OF INTEREST.')


***

THE PURCHASE OF THE SECURITIES OFFERED HEREBY IS SUITABLE ONLY FOR THOSE WHOSE BUSINESS AND INVESTMENT EXPERIENCE MAKE THEM CAPABLE OF EVALUATING, EITHER ALONE OR TOGETHER WITH A QUALIFIED PURSCHASE REPRESENTATIVE (ATTORNEY, ACCOUNTANT OR OTHER QUALIFIED FINANCIAL ADVISOR), THE MERITS AND RISKS OF AN INVESTMENT IN THE PARTNERSHIP AND WHO CAN AFFORD TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD AND HAVE NO NEED FOR LIQUIDITY IN SUCH INVESTMENT."

¶ 6 According to the body of the memorandum, the "objective" of the Jackson Income Fund's trading is the "appreciation of its assets by investment in high-yield securities." In that vein, the fund is to "concentrate its efforts and investment in stocks, notes and bonds in the thrift, banking, brokerage, home building and insurance industries." Among the numerous potential advantages to the Jackson Income Fund, the memorandum states that investing in the fund carries the potential of "investment diversification." ¶ 7 The memorandum further describes the Jackson Income Fund's investment strategy. According to the document that strategy primarily involves five factors: (1) attempting to purchase public and private debt offerings in the thrift, insurance and banking industries; (2) purchasing shares of dividend paying stock in the thrift industry after their initial public offering; (3) investing in certain banking and insurance stocks and other financial institutions; (4) the use of margined accounts when trading these securities; and (5) investing in non-financial securities. The memorandum provides that the fund also intends to:

"engage in the trading of various types of domestic securities, including but not limited to, listed and unlisted common stock, corporate bonds, trust preferred securities, preferred stock, stock warrants and rights, convertible securities, money market obligations and options to buy and sell securities, and to a lesser degree commodities such as currencies, commodity futures, agricultural and tropical items, industrial items, metals and financial and economic indices." (Emphasis added.)

¶ 8 The memorandum further outlines the fund's trading policies. According to the memorandum, the general partner will: (1) normally trade securities that it deems to have sufficient liquidity; (2) normally only invest where it deems sufficient volume exists; (3) not receive commission from the trading activity in its accounts and have no financial incentive to generate trades in its accounts. With respect to the second prong involving sufficient liquidity, the memorandum clarifies:

"From time to time, the [Jackson Income Fund] will invest in thinly traded securities in the savings and loan and thrift industries. These positions will be held with a longer term prospective. It may take two to four years before the securities trading volume is sufficient for the [fund] to easily liquidate their positions. From time to time, there are markets made in these securities; however, they are not traded on a daily basis. The [Jackson Income Fund] may also invest in non-public securities. These securities may be highly illiquid and difficult to price for accounting purposes."

The memorandum caveats the aforementioned trading policies by stating that the general partner does "not intend to limit its use of investment vehicles or its policies to the above described investment instruments or strategies." ¶ 9 The memorandum also sets forth numerous potential risks of investing in the Jackson Income Fund, including, but not limited to: (1) conflicts of interest; (2) the limited ability to liquidate or transfer units; (3) the speculative nature of the fund's trading activity; and (4) the limited ability to liquidate investments in the unit. With respect to conflicts of interest, the memorandum, inter alia: (1) lists "other securities trading partnerships" (i.e., other hedge funds owned by or affiliated with the general partner) and (2) notes that "the general partner or its principals may be selling securities that the fund may be buying." ¶ 10 The memorandum also includes a section titled "Fiduciary Responsibility of the General Partner," which states that the general partner owes a fiduciary responsibility to the limited partners to "exercise good faith and fairness in all dealings affecting the [fund]." This section also incorporates by reference the duties and obligations of the general partner set forth in the limited partnership agreement, attached as an exhibit. That agreement lists the general partner's obligations to the fund, in its capacity as the fund's trading advisor, and the entity authorized to make "any and all trading decisions regarding the fund." Those duties include the exercise of "good faith and fairness in carrying out its duties and exercising its powers in regard to, or [on] behalf of" the Jackson Income Fund, "devot[ing] such time and efforts to the furtherance of the business of the [fund] as it, in its sole discretion, deems reasonably necessary and appropriate." The limited partnership agreement further provides that the general partner has a "fiduciary responsibility with respect to safekeeping the fund's assets, regardless of whether those assets are in its immediate possession." ¶ 11 In further outlining the general partner's fiduciary duties, the limited partnership agreement provides that the general partner is permitted to "engage in other business activities" and does not have to "refrain from any other activity nor forego any profits, fees or other compensation from any such activity. The limited partnership agreement includes trading policies identical to those listed in the memorandum, and states that the general partner will keep "proper books of account and records relating to the fund's business." ¶ 12 The parties to this appeal do not dispute that after executing the subscription agreement and investing money in the Jackson Income Fund, the plaintiffs subsequently withdrew their investments and filed the instant five-count lawsuit against the defendants. The complaint was made by the plaintiffs individually, as well as derivatively on behalf of the Jackson Income Fund, and alleges: (1) breach of contract, as to the individual plaintiffs (count I); (2) breach of fiduciary duty, as to the individual plaintiffs (count II); (3) breach of fiduciary duty, derivatively (count III); (4) inducing a breach of fiduciary duty, as to the individual plaintiffs (count IV); and (5) inducing a breach of fiduciary duty derivatively (count V).¹ ¶ 13 Prior to trial, the defendants filed a motion for judgment on the pleadings, or in the alternative a motion for summary judgment, contending that their investment actions were authorized under the memoranda. The trial court denied the defendant's motion and the matter proceeded to a jury trial on the breach of contract claim (count I). ¶ 14 At trial, the parties presented the testimony of three witnesses and introduced into evidence copious exhibits, including, inter alia, the executed subscription agreements, with attached memoranda and limited partnership agreements, the Jackson Income Fund's financial statements, monthly letters to investors, and numerous and varied correspondence between the parties. For purposes of brevity, we include only that testimony and evidence relevant to the disposition of the issues before us. ¶ 15 The plaintiff, Bogan, testified that she executed the subscription agreement on March 30, 2005, and invested $1 million in the Jackson Income Fund. She testified, however, that she never received or read the memorandum before investing that money. She explained that she did not read the memorandum because she had had extensive conversations about the Jackson Income Fund with Duggan, who was a trusted family friend, and she put "complete faith" in his assurances that investing in the fund would be safe. ¶ 16 Bogan explained that she had known Duggan since she was a child. Duggan had initially worked as an accountant for Bogan's mother, Sally Rynne (Sally), and her stepfather, Terry Rynne (Terry), and later became a close friend, as well as the family's financial advisor. According to Bogan, her mother, Sally, was a savvy business woman, who successfully founded her own company--Women's Healthcare Consulting. In 1997, Sally gifted 10% of her company to each of her six children, including Bogan, and for the next several years, Bogan received annual dividends from her mother's company as income. When in 2005, Sally decided to sell her company, Bogan wanted to invest her share in a way that would pay her children's college, and "set her up comfortably for the rest of her life." ¶ 17 Accordingly, in January 2005, together with her sister, Daley, mother Sally, and stepfather, Terry, she had a telephone conversation with Duggan apprising him of her wishes and asking for his advice. Dugan told Bogan that subscribing to the Jackson Income Fund would be safer than placing her money in a bank, and that her money would be liquid. He advised her to invest $1 million in the fund, because 6% (or $60,000) would be the equivalent of what she had been receiving in dividends from her mother's company. Bogan testified that she understood that she would be receiving "dividends" from her investment in the fund, and that they would be distributed to her quarterly. She acknowledged that once she began receiving these payments, as well as the fund's monthly financial statements, she never asked or questioned whether those payments were coming from her principal or from interest earned on that principal. ¶ 18 Bogan acknowledged that she continued to receive proceeds from the Jackson Income Fund, until January 2008, when the housing crisis began. When in March 2008, her statement showed that her "units" were decreasing drastically, with the help of her stepfather, Terry, she arranged a meeting with Duggan. At that March 14, 2008, meeting, held in the presence of Terry and Sally, Duggan reassured Bogan that her money was safe and that she should not liquidate her investment in the fund. Bogan was nevertheless worried and continued to regularly call Duggan to check on her investment. ¶ 19 On October 9, 2008, Bogan received an email from Duggan telling her "not to panic," but that "it was too late to withdraw her money," that the "bottom [was] near," that this was "one of the worst times in market history," and that he recommended that she not "take her January 1 quarterly payment." When she read this email, Bogan panicked because she relied on the quarterly payments for her living expenses. Bogan called Duggan, and during that conversation, they agreed that she would take her quarterly "dividends" on a monthly basis, taking out as little money as possible to cover her bills, but not jeopardizing her overall financial status. Bogan averred that during this conversation, Duggan never told her that the money she would be receiving would be coming from her principal and not from interest on her investment. ¶ 20 Bogan testified that afterwards she regularly continued to call Dugan to check on her investment, and every time he reassured her that her money was safe and that the fund was doing well. She averred that she telephoned Duggan at the beginning of June 2008, and was told that the fund had made money in May. However, when Bogan received her May 2008 financial statement she noticed that the fund had lost money again. Bogan immediately emailed Duggan with this concern, but he only responded that the April 2008 statement had been accidentally sent with the May date, and that a corrected copy would be sent to her. Bogan testified that at this point she lost all trust in Duggan and asked that her money be returned. Bogan received $150,000, from the $1 million she initially invested in the fund. ¶ 21 On cross-examination, Bogan acknowledged that by signing the subscription agreement, she represented and warranted that she had read and understood the high-risk, illiquid nature of the fund and the securities comprising the fund. She also admitted that by signing that agreement she represented that she had read and understood the memorandum, and that no one prevented her from reading it. ¶ 22 On cross-examination, Bogan admitted that when she signed the subscription agreement she represented that she had no immediate need for liquidity. She further admitted that in signing that agreement she warranted that she did not rely on the advice of others in evaluating the merits and risks of her interest in the fund and that she could bear losing all her money. Bogan also acknowledged that she did not know or understand why the fund lost money. ¶ 23 On cross-examination, Bogan admitted that when she initially talked to Duggan about investing her money, before signing the subscription agreement, he had made her an offer which would guarantee her a 6% return on her investment, but she turned that offer down and decided to invest more aggressively. She explained that she did so because Duggan had told her that she would be missing out on 12-15% profits. Bogan denied, however, that the 6% return guarantee was made as part of an offer to be a lender for the Jackson Income Fund, rather than an investor. ¶ 24 On cross-examination, Bogan was next impeached with the use of the fund's annual tax returns (K-1 forms). While the trial court denied the defendants' request to introduce these tax returns into evidence, as inadmissible disclosures under federal law, it permitted the defendants to question Bogan regarding her receipt of the same and her understanding of their substance. Bogan acknowledged that she received annual tax return forms from the Jackson Income Fund for each of the years she invested in the fund (between 2005 and 2011), but averred that she never noticed that those forms stated that she was receiving "withdrawals" rather than "dividends" from the fund. ¶ 25 Bogan's sister, Daley next testified consistently with Bogan. She too testified that since 1997 she had been receiving quarterly dividends from her mother's company. According to Daley, when in 2005, Sally wanted to sell her company she approached Duggan for advice, and he helped her both with the valuation and the sale. Daley testified that prior to the sale, in January 2005, she had a telephone conference call with Bogan, Sally, Terry, and Duggan, wherein Duggan described to them the possibility of a fund that would replace the dividends Daley and Bogan had been receiving from Sally's company in the last six years. After that telephone call, it was Daley's understanding that Duggan's fund would be investing in banks, savings and loans, stocks and bonds. Daley averred that Duggan never told them that the fund he proposed would invest in high-risk investments, motion pictures, or his own companies. ¶ 26 Daley testified that after her mother sold the company in March 2005, she spoke to Duggan again. At that time she informed Duggan of her financial situation, which was different from her sister's, in that she had more disposable income and desired a more aggressive and diversified financial investment strategy. After corresponding with Duggan, Daley invested in two of Duggan's funds, with $300,000 going into in the Jackson Income Fund. She testified that based on her communications with Duggan, it was her understanding that the Jackson Income Fund was the safer of the two funds. ¶ 27 Daley admitted that prior to investing in the fund she signed the last page of the subscription agreement and faxed it to Duggan. She could not recall reading the entire subscription agreement and averred that she did not fill in those portions of the subscription agreement that inquired about her financial and investment background. She stated that the handwriting in those sections was not hers. ¶ 28 Daley also testified that she did not recall if she read the memorandum, but stated that she did understand its content concerning the liquidity and risk factors involved in her investments. She testified that she nonetheless invested in the Jackson Income Fund because Duggan had assured her that the fund was a "good investment." She also testified that she received monthly statements from the Jackson Income Fund and that from those statements, at some point she noticed that the account value was depreciating. She admitted that she was not paying close attention to the financial statements she was receiving monthly from the fund and could not recall whether she wanted to withdraw her money prior to January 2010. She testified, however, that she did withdraw her investment November 2010, at which point she received approximately $92,575.89 of the $300,000 she had invested. ¶ 29 On cross-examination, Daley acknowledged that she invested in the Jackson Income Fund on the recommendation of her mother, whom she considered a sophisticated investor and business person. She stated that her mother had talked to her about the risk and benefits of the fund and why she should or should not choose to invest in it. ¶ 30 On cross-examination, Daley also acknowledged that her mother invested in the Jackson Income Fund but did not file a law suit against Duggan. She also admitted that she herself "partially" filed the lawsuit to support her sister, Bogan. ¶ 31 On cross-examination, Daley further acknowledged that after having read the memorandum for purposes of trial, she now understood that investors were not promised that the Jackson Income Fund's financial statements would be audited, and that the fund was permitted to invest both in trust preferred securities and unlisted securities for which there was no market. ¶ 32 Paul Duggan (Duggan) next testified both as an adverse witness for the plaintiffs, and on his own behalf. He acknowledged that he is a certified public accountant but stated that since the late 1980s, he has primarily managed hedge funds. Duggan opened Jackson Boulevard in 1993 as a limited partnership, with himself as the general manager and president. In 2004, Jackson Boulevard created the Jackson Income Fund, with Jackson Boulevard acting as the general partner and investment advisor to the fund. Duggan testified that the purpose of the fund was to invest in various types of securities. As the president of Jackson Boulevard, Duggan himself did all the investing for the fund, and the limited partner client-investors had no choice about the type of investments made. Duggan stated that he formed Jackson Capital in 2008, and that it replaced Jackson Boulevard as the general partner of the Jackson Income Fund. Duggan continued to act as Jackson Capital's manager and to be responsible for all investment decisions. ¶ 33 Duggan acknowledged that under the limited partnership agreement, Jackson Boulevard, as the general partner had a fiduciary responsibility to all of its limited partners, including Bogan and Daley, to exercise good faith and fairness in all dealings affecting the partnership, and with respect to the partnership's assets. Duggan testified that for purposes of determining whether he was acting in good faith, he was required to look at the promises contained in the memorandum, which defined what the general partner could and could not do. He testified that if any investor ever wanted to know what the fund had been investing in, he would have been happy to disclose this information. He averred that neither plaintiff ever inquired about the types of investments the fund was making, either from him or any other fund employees. ¶ 34 Duggan explained that the Jackson Income Fund did not pay "dividends," because it was not a corporation. However, if clients wanted to draw income from their capital in the fund, the fund would pay them 0.5% per month or 6% per year. According to Duggan, the capital in the fund included profits. So, for example, if an individual started with $100,000 and the fund made $4,000 in profits, the capital in the account would be worth $104,000, and any draw would be subtracted form that $104,000. ¶ 35 Duggan acknowledged that the Jackson Income Fund's investment strategy projected periods of "illiquidity" which meant that investors could not always withdraw their entire investments. Duggan explained, however, that there was never a time when a partner was denied the sum of money requested, and those monies were always paid out without any penalty charged. ¶ 36 Duggan next acknowledged that as per the memorandum, Jackson Boulevard received annual expenses equal to two percent of the fund's capital, and that these expenses were paid from the fund, regardless of whether the fund made profits. The expenses were used to pay monthly bills, including employee salaries, lights, rent, overhead and computers, and investors were notified of recoupment of all expenses in writing. ¶ 37 Duggan next testified about how he came into contact with the plaintiffs. He explained that he never advertised his hedge funds, and that most of his clients were referred to him, or were people that he knew. ¶ 38 Duggan explained that because the Jackson Income Fund was an unregulated hedge fund there was no prerequisite as to who could invest. He testified that only a hedge fund with more than 100 investors has to be registered. A fund with less than 100 investors can avoid registration, so long as it has less than 35 non-accredited investors. ¶ 39 In order to determine whether a prospective client was an accredited investor, Duggan had the client fill out the subscription agreement, which included a Regulation D questionnaire, probing into the client's finances and investment background. Duggan explained that the subscription agreement defines an accredited investor as one whose net worth is over $1 million, or whose individual net income has been greater than $200,000 in the last two years. Duggan testified that based on the answers that Daley and Bogan provided in their subscription agreements, he knew that they were accredited investors because each had a net worth of more than $1 million. ¶ 40 Duggan acknowledged that he has known the plaintiffs since the early 1980s, because he was friends with the plaintiffs' mother, Sally, and stepfather, Terry. Duggan denied that he was ever the family's financial advisor or that he is licensed as such. Duggan testified that after Sally sold her company for $22 million, in 2005, Terry approached him indicating that Bogan and Daley wanted to invest their money in the fund. Duggan denied that he created the Jackson Income Fund for Bogan and Daley or the Rynne family. He explained that Bogan, Daley and their family made up only about 12 to 15% of the fund's investors. ¶ 41 Duggan testified that before Bogan decided to invest in the fund, he had a telephone conversation with her, during which he informed her that if she wanted a no-risk transaction, she could invest in the fund as a lender. Duggan explained that as a lender, Bogan would be guaranteed to receive 6% interest a year (or $60,000) on the loan, and her investment would be like a CD in a bank. Duggan told Bogan that if she wanted a higher return on her investment, she would have to subject herself to risk and instead of a lender, act as an investor. He stated that Bogan chose the latter. ¶ 42 Duggan averred that he never told either Bogan or Daley that the Jackson Income Fund was a safe investment or that their money would be diversified. He also denied that he ever told them that investing in the fund would ensure that they were "taken care of" for the rest of their lives. Instead, Duggan testified that he suggested to both plaintiffs that they consult their own financial advisors before deciding to invest in the fund. With respect to the section of the memorandum indicating that one of the potential benefits of the fund was "investment diversification," Duggan testified that this did not meant that the fund itself would be diversified but rather that investors could use an investment in the Jackson Income Fund to give diversification to other fund investments and other portfolios they owned. In addition, he testified that he believed that the fund's investments were diverse because the fund invested in "over one thousand different entities." He explained that the fund invested in collateralized debt obligations and trust preferred notes, which made the fund diverse. The collateralized debt obligations made up of these trust preferred bank notes covered six geographical areas and typically held somewhere between 40 to100 different banks. ¶ 43 Duggan testified that prior to investing in the fund, both Bogan and Daley delivered the executed subscription agreements to Jackson Boulevard. He testified that each agreement was attached to a memorandum and a limited partnership agreement, and denied that he had the plaintiffs sign the agreements before they were presented with the memorandum. He also denied filling out any sections of the subscription agreement for them. ¶ 44 Duggan next testified about the financial situation of the Jackson Income Fund starting in 2007. He acknowledged that prior to 2007 the fund had made substantial profits, but that beginning in 2007 and 2008, when the market began to crash, it started losing money. He acknowledged that the fund lost about $15 million in the three years during the market crash. He claimed, however, that the fund never experienced any liquidity issues, and that it was always able to pay investors the monies they requested by away of a distribution. ¶ 45 Duggan acknowledged that in 2006 the fund invested: (1) $106,000 in corporate bonds; (2) $1.4 million in common stocks; (3) $12.9 in preferred term securities; and (4) $600,000 in collateralized debt obligations (which are the riskiest investments). He also admitted that in 2007, the fund invested $1.7 in Merry Gentlemen L.L.C., (Merry Gentlemen), a company in which he had 38.33% ownership, for the production of the movie "Merry Gentlemen." He stated, however, that this investment was a loan, which was made with collateral and a very high interest rate, and made profits for the fund both in 2007 and 2008. Duggan also admitted that in 2007, the fund made a $1.6 million loan to TV Compass, Inc. (TV Compass), a company of which he was part-owner and chairman, and a $1.2 loan to Twin Gardens, an entity in which his wife held ownership. Duggan explained, however, that both loans were made with interest rates and never lost income for the fund. Rather both loans made profits in 2007. In 2008, TV Compass again made profits for the fund, and the loan to Twin Gardens was paid off. Duggan testified that the financial statements mailed annually to all investors showed these profits. ¶ 46 Duggan next testified that contrary to the plaintiffs' understanding, according to the memoranda, attached to their subscription agreements, the fund was permitted to purchase trust preferred notes. He explained that such notes were purchased at a substantial discount and held in maturity to ensure that the return was 19-20%, but that the only way to earn profits was in the long-term, by holding the notes until maturity. He also testified that the collateralized debt obligations in which the fund held these trust preferred notes were regionally diversified. ¶ 47 Duggan testified that Jackson Boulevard (and later Jackson Capital) sent monthly letters to all investors informing them on how the fund was doing. He admitted that in October 2008, he sent a letter to all investors, including Bogan and Daley, telling them that the "bottom was near" and that this was the "worst market in history since the 1929 crash," and that they could not withdraw their money. Duggan testified, however, that in that same letter he warned the investors not to panic, and asked that if they could "find a way not to take the draw, then more of [their] money [had] a chance to recover quicker." Duggan further informed the investors that he expected to realize "large gains over the next three years," which would accrue from the "purchase of bonds" that were made "during the panic sell off." ¶ 48 Duggan testified that just as he had predicted, three years after this letter was sent, the fund reaped large benefits on the purchased bonds. He averred that had Bogan and Daley taken his suggestion, and kept their money in the fund, they would have regained a substantial portion of the money they lost because of the market collapse. ¶ 49 Bogan also testified that prior to filing their lawsuit, neither plaintiff ever complained to him about any particular investment made by the fund. In fact, he testified that no investor ever complained about his investment strategy, and that the only complaint he ever received was from the plaintiff, Bogan, when she called to complain about the May 2008 statement, which was wrongly dated. Duggan also explained that although all investors, including Bogan and Daley, received annual income tax reports from the fund, which would have revealed that beginning in 2007, the fund's capital was decreasing, neither plaintiff ever inquired about these losses between 2007 and 2010. Instead, according to Duggan, in 2011, they simply withdrew their respective investments and filed the instant lawsuit. ¶ 50 After hearing all the evidence, and closing arguments, the jury returned a verdict in favor of the defendants on the breach of contract claim. The parties then filed closing arguments relating to the breach of fiduciary duty claims (counts II-V). On February 4, 2016, the trial court entered judgment in favor of the defendants. In doing so, the court held that the plaintiffs had not met their burden in establishing that the defendants' investments violated the terms of the memorandum or limited partnership agreement, that the plaintiffs had been sufficiently apprised of the defendants' investment strategies, and that that those strategies and investment decisions had been authorized by the memorandum and limited partnership agreement. Accordingly, the trial court concluded that the defendants had not breached any of the fiduciary duties they owed to the plaintiffs or induced any breaches of such duties. ¶ 51 The plaintiffs now appeal contending that the trial court's decision regarding the breach of fiduciary duty counts was against the manifest weight of the evidence.

1 We note that the plaintiffs originally filed their complaint in March 2011. However, after voluntarily dismissing that complaint, they "re-filed" the instant cause of action on November 17, 2014. --------

¶ 52 II. ANALYSIS

¶ 53 A. Breach of Fiduciary Duty Claims (counts II and III)

¶ 54 On appeal, the plaintiffs first argue that the trial court erred in finding that the defendants did not breach their fiduciary duties where the evidence at trial established that the defendants: (1) invested over 80% of the Jackson Income Fund in risky collateralized debt obligations and trust preferred notes; and (2) made self-serving investments to several entities with which they were affiliated, in direct contravention of the parties' agreements. For the reasons that follow, we disagree. ¶ 55 To prevail on a claim for breach of fiduciary duty, the plaintiffs were required to prove: (1) the existence of a fiduciary duty on the part of the defendants; (2) the defendants' breach of that duty; and (3) damages proximately resulting from that breach. DOD Technologies v. Mesirow Insurance Services, Inc., 381 Ill. App. 3d 1042, 1046 (2008); see also Neade v. Portes, 193 Ill. 2d 433, 444 (2000). Our review of the trial court's determination as to whether the defendants breached their fiduciary duty to the plaintiffs is under the manifest-weight-of-the-evidence standard. Lawlor v. North American Corporation of Illinois, 2012 IL 112530, ¶ 70. In reviewing the trial court's order, we are mindful that, as the trier of fact, the trial court is responsible for resolving any factual disputes, assessing the credibility of the witnesses, determining the weight to be afforded the witness's testimony, and resolving any conflicts in the evidence. Bernstein & Grazian, P.C. v. Grazian & Volpe, P.C., 402 Ill. App. 3d 961, 976 (2010). We may not conclude that the trial court's findings of fact are against the manifest weight of the evidence merely because the record might support a contrary decision or we disagree with them. Bernstein & Grazian, 402 Ill. App. 3d at 976. Rather, a judgment is against the manifest weight of the evidence only when an opposite conclusion is clearly apparent or the trial court's findings appear to be unreasonable, arbitrary, or not based upon the evidence. Lawlor, 2012 IL 112530, ¶ 70. ¶ 56 A fiduciary duty relationship may arise either as a matter of law, such as between agent and principal, or as a matter of fact due to "the special circumstances of the parties' relationship where one places trust in another so that the latter gains superiority and influence over the former." Benson v. Stafford, 407 Ill. App. 3d 902, 912 (2010). ¶ 57 In the present case, it is undisputed that the parties' relationship was governed by the limited partnership agreement, attached to the subscription agreement and memorandum, and that under this agreement, the parties stood in a general partner-limited partner relationship. Under the Illinois Uniform Limited Partnership Act (Act) (805 ILCS 205/0.01 et seq. (West 2012)), which governs such relationships, a general partner owes the limited partners and the partnership the fiduciary duties of (1) loyalty and (2) care. 805 ILCS 21/408 (West 2012). With respect to the duty of loyalty the Act provides that the general partner's duty to the limited partnership and other partners includes:

" (1) to account to the limited partnership and hold as trustee for it any property, profit, or benefit derived by the general partner in the conduct and winding up of the limited partnership's activities or derived from a use by the general partner of limited partnership property, including the appropriation of a limited partnership opportunity;

(2) to act fairly when dealing with the limited partnership in the conduct or winding up of the limited partnership's activities as or on behalf of a party having an interest adverse to the limited partnership; and

(3) to refrain from competing with the limited partnership in the conduct or winding up of the limited partnership's activities." 805 ILCS 21/408(b) (West 2012).

¶ 58 With respect to the duty of care, the Act provides that a general partner's duty is "limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law." 805 ILCS 215/408(c) (West 2012). The Act further provides that a general partner shall discharge his or her duties to the limited partners and partnership consistent with the obligation of good faith and fair dealing. 805 ILCS 21/408(e) (West 2012). However, the Act also provides that "a general partner does not violate a duty or obligation under th[e] Act or under the partnership agreement merely because the general partner's conduct furthers the general partner's own interest." 805 ILCS 215/408 (e) (West 2012). ¶ 59 While the Act prohibits the parties from using the partnership agreement to "eliminate or reduce fiduciary duties," it allows the agreement to "identify specific types of categories of activities that do not violate the duties, if not manifestly unreasonable." 805 ILCS 215/110(b)(5)(A) (West 2012). In addition, while the Act does not permit the partnership agreement to reduce the obligation of "good faith and fair dealing" under section 408(d), it allows the agreement to prescribe "the standards by which the performance of the obligation is measured, if the standards are not manifestly unreasonable." 805 ILCS 215/110(b)(6) (West 2012)). Accordingly, under Illinois law, a general partner will rarely be deemed in breach of his fiduciary duties where he has complied with an express authorization in the partnership agreement. LID Associates v. Dolan, 342 Ill. App. 3d 1047, 1062 (2001) (citing Adler v. William Blair & Co. 217 Ill. App. 3d 117, 131-32 (1995). ¶ 60 In the present case, the three documents governing the operation of the Jackson Income Fund, namely the subscription agreement, the memorandum and the limited partnership agreement refer to the general partner's fiduciary responsibility to its limited partners in three places. The memorandum states that "the general partner has the fiduciary responsibility to the limited partners to exercise good faith and fairness in all dealings affecting the partnership." Consistent with the Act, the limited partnership agreement provides that the general partner has the fiduciary responsibility with respect to safekeeping the partnership's assets regardless of whether those assets are in its immediate possession and that the general partner shall exercise "good faith and fairness in carrying out its duties and exercising its powers in regard to, or on behalf of, the partnership and shall devote such time and efforts to the furtherance of the business of the partnership as it, in its sole discretion, deems reasonably necessary and appropriate." The partnership agreement further explicitly permits the general partner to engage in other business activities for its own interest, and receive profits and other compensation for them. In that vein, the memorandum also warns investor of numerous conflicts of interest that are inherent in the partnership, including, inter alia, that the general partner or its principals may sell securities to the fund, and that there may be trading of securities with other trading partnerships affiliated with the fund. ¶ 61 Relying on the provisions of these three documents and the testimony of the parties' offered at trial, the trial court concluded that the plaintiffs had failed to meet their burden of establishing that any of the defendants' investments violated the terms of the memorandum and partnership agreement, so as to rise to the level of a breach of fiduciary duty to either the individual plaintiffs or derivatively to the fund (counts II, and III). In doing so, the trial court found that both plaintiffs had testified to signing the relevant documents, which required them to swear that they read and understood the high-risk illiquid nature of the fund and securities comprising the fund. The court further noted that Duggan testified that he never contractually or orally promised liquidity or diversity of investments to any specific limited partners in the fund, but only promised diversification of the fund itself, but that even if he had, the fund was diversified. The court also believed Duggan's testimony that he never guaranteed any outcome or return to either plaintiff or any other investor in the fund, and that under the documents signed by both plaintiffs, the plaintiffs could have asked him what type of investments the fund was making, and would have received a response, but chose not to do so. The court also noted that Duggan had testified that when the housing crisis began to affect the market in 2007, neither plaintiff contacted him to withdraw her investment, and that he would have immediately liquidated their assets upon request. The court also found relevant Duggan's testimony that the loans made by the fund to other entities did not lose any of the fund's principal capital and that it was his opinion that the then-existing market conditions caused by the housing crisis resulted in all complained-of losses. Under this record, the trial court concluded that any investment decisions made by Duggan, Jackson Capital, and Jackson Boulevard for the fund were expressly authorized by the memorandum and partnership agreement, and did not rise to the level of a breach of fiduciary duty to either the individual plaintiffs or derivatively to the fund. After a review of the record, we find nothing manifestly erroneous in this finding. Lawlor, 2012 IL 112530, ¶ 70.

¶ 62 1. Investment in Collateralized Debt and Trust Preferred Notes

¶ 63 The plaintiffs nonetheless assert that the trial court erred in finding that the defendants did not breach their fiduciary duties because the evidence at trial established that the defendants invested over 80% of the Jackson Income Fund in risky collateralized debt obligations and trust preferred notes. The plaintiffs appear to argue that the breach of fiduciary duty arose from a lack of diversification in the fund. They also argue that the fund's purchase of the collateralized debt obligations went beyond the list of permissible fund investments articulated in the governing agreements and memoranda. We disagree. ¶ 64 The evidence presented at trial established that there was no requirement that the Jackson Income Fund be diversified. At trial, Duggan testified that the language referring to diversification in the memorandum merely described "investment diversification" as an opportunity for investors, like the plaintiffs, to diversify their other portfolios by participating in the securities and commodities markets through the Jackson Income Fund. Similarly, the limited partnership agreement, which both plaintiffs acknowledged signing, explicitly provided that the fund would "not allocate predetermined percentages of assets to financial securities, but [would] invest in security and commodity interests in which it s[aw] a potential for capital appreciation regardless of market segment." More importantly, the limited partnership agreement explicitly authorized "the general partner, on behalf of the fund, as the fund's trading advisor" to make "any and all trading decisions regarding the fund." As such, any purported lack of diversity resulting from 80% of the fund's investment in collateralized debt did not constitute a breach of fiduciary duty. ¶ 65 Even if, however, diversification of the fund, was required, the evidence presented at trial established that the fund was diversified. Duggan testified that owning the collateralized debt obligations actually served to diversify the fund. Duggan testified that the fund owned mortgage backed securities that involved six different geographic areas and hundreds of banks. He explained that collateralized debt obligations were made up of trust preferred notes, and typically held somewhere between 40 to 100 different bank stocks from all over the United States, thereby allowing the fund to invest in over one thousand entities. Duggan further explained that the memorandum, attached to the subscription agreements, and signed by both plaintiffs, explicitly listed trust preferred notes as permitted investments. According to that provision of the memorandum the fund "intends to engage in the trading of various types of domestic securities including but not limited to *** trust preferred securities." Duggan stated that those trust preferred securities were trust preferred notes. Since the plaintiffs provided no evidence whatsoever to the contrary, they failed to prove that this particular investment strategy was unauthorized by the agreements, so as to constitute a breach of the defendants' fiduciary duties.

¶ 66 2. Self-Serving Investments

¶ 67 The plaintiffs next argue that the evidence at trial established that the defendants breached their fiduciary duties by investing in several entities with which they were "affiliated," in direct contravention of the memorandum. The plaintiffs specifically take issue with the following loans made by the fund: (1) $1.7 million to the company producing the movie, "The Merry Gentlemen," of which Duggan was part owner, and manager; (2) $1.2 million to TV Compass, a company which Duggan part-owned and whose board he chaired; and (3) $1.6 million to Twin Gardens, an entity in which Duggan's wife had an ownership interest. The plaintiffs cite to the following section of the memorandum which provides that the fund will not make any loans of its funds to affiliates: "Neither the partnership nor the general partner is affiliated with any commodity, security-broker, dealer or any other party through which partnership assets will be invested." The plaintiffs argue that because Duggan, or his family members, were directly or indirectly affiliated with all three aforementioned entities to which the fund loaned money, the defendants' actions in making those loans, and failing to disclose them, constituted a breach of their fiduciary obligations. ¶ 68 While we agree with the plaintiffs that the aforementioned loans give the appearance of impropriety, based on the evidence presented at trial, we nonetheless cannot find that the trial court's ruling on this issue was against the manifest weight of the evidence. As already noted above, to succeed on a breach of fiduciary duty claim, the plaintiffs were required to present, not only the existence of a fiduciary duty and the breach of that duty, but also that the breach proximately resulted in damages. See DOD Technologies, 381 Ill. App. 3d at 1046 (2008); see also Neade, 193 Ill. 2d 433, 444 (2000). The plaintiffs utterly failed to do so here. The evidence at trial established that all three complained of loans charged interest rates, and made money for the Jackson Income Fund. Specifically, Duggan testified that the loan to Merry Gentlemen netted the Jackson Income Fund $485,114.06 in interest income. Likewise, the loan to Twin Gardens was fully repaid and resulted in the fund receiving interest income of $210,575. Finally, the loan to TV Compass was fully repaid and the Jackson Income Fund earned interest income of $719,551. The plaintiffs offered absolutely no evidence to rebut this testimony at trial. Accordingly, they failed to establish that any breach of fiduciary duty proximately resulted in damages, so as to succeed on their breach of fiduciary duty claims. ¶ 69 The plaintiffs attempt to argue that we should disregard Duggan's self-serving testimony regarding these loans, in light of the fact that he admitted at trial that after 2007, he chose not to have the Jackson Income Fund audited by an independent accounting firm. Contrary to the plaintiffs' position, however, Duggan provided an explanation for his decision to stop the audits. He explained at trial that he chose not to have the fund audited because in 2007 the accounting firm wanted to charge three times the amount of money it had charged previously to value illiquid assets that the fund had no intention of selling. Moreover, the record is clear that audits were not required under the memorandum, and they were never promised to the plaintiffs. As the trier of fact, the trial court here was vested with the responsibility of assessing witness credibility, and chose to believe Duggan, and we are not at liberty to second guess that determination. See Bernstein & Grazian, 402 Ill. App. 3d at 976 ("the trier of fact is responsible for resolving any factual disputes, assessing the credibility of the witnesses, determining the weight to be afforded the witness's testimony, and resolving any conflicts in the evidence.") ¶ 70 Accordingly, for all of the aforementioned reasons, we conclude that the trial court's judgment in favor of the defendants on the breach of fiduciary duty claims (counts II and III) was not against the manifest weight of the evidence.

¶ 71 B. Inducement of Breach of Fiduciary Duty (counts IV and V)

¶ 72 We similarly reject the plaintiffs' contention that the trial court erred in entering judgment in favor of the defendants on the inducement of breach of fiduciary duty counts (IV and V). ¶ 73 Illinois recognizes a cause of action for a third party's inducement of a breach of fiduciary duty, in which a third party who colludes, induces, or participates with a fiduciary in committing a breach of duty, and obtains the benefits therefrom is directly liable to the aggrieved party. Alpha School Bus Co., Inc. v. Wagner, 391 Ill. App. 3d 722, 738 (2009). To succeed on such a claim, the plaintiffs are required to prove that the defendants: (1) colluded with a fiduciary in committing a breach of duty; (2) induced or knowingly participated in such a breach; and (3) knowingly accepted the benefits resulting from such a breach. Village of Wheeling v. Stavros, 89 Ill. App. 3d 450, 454 (1980). A predicate to any liability based on a theory of an inducement of a breach of a fiduciary duty, however, is the existence of a fiduciary duty in the first instance. Alpha School Bus, 391 Ill. App. 3d at 738. ¶ 74 The plaintiffs here argue that the trial court erred in ruling in favor of the defendants on this count because the evidence at trial established that Duggan induced them to remain in the fund, which he knew or should have known was at great risk of loss. Specifically, they point to the 2008 letter sent by Duggan to all investors telling them that the bottom was near the end and advising them not to withdraw their money. We disagree. ¶ 75 Contrary to the plaintiffs' position, the evidence presented at trial, established that the defendant kept the plaintiffs and all other limited partners fully apprised of the fund's performance and the impact of market fluctuations, both through monthly financial statements and regular correspondences. The trial court found that when the housing crisis began to affect the market in 2007, neither plaintiff contacted Duggan, either with concerns about the decreasing capital of the fund or attempting to withdraw their investments. The court further found that Duggan credibly testified that had the plaintiffs done so, he would have happily liquated their investments. The plaintiffs also presented no evidence that Duggan singled them out to "induce" or coerce them to keep their money in the fund after 2008. In fact, Jackson Capital, through Duggan, recommended to all its investors that they not panic and that they hold their investments for three years to permit recovery and gains from the market meltdown. Duggan testified at trial that just as he had predicted, the money was recouped after those three years. Notwithstanding Duggan's advice, however, the plaintiffs withdrew their investments form the fund at the bottom of the market meltdown. Had they kept their money in the fund, as Duggan had suggested, the unrebutted evidence presented at trial established that their investments would have recovered and made them money. Under this record, we find that the trial court's conclusion that the plaintiffs failed to establish Duggan breached any fiduciary duties, so as to prove one of the requisite elements of their inducement claims, was not against the manifest weight of the evidence.

¶ 76 C. Use of Income Tax Returns in Testimony

¶ 77 In their final effort to argue that the trial court's holding was against the manifest weight of the evidence, the plaintiffs contend that they were prejudiced by Duggan's continued referral to the fund's confidential tax records, whose disclosure was not permitted under federal law. The plaintiffs acknowledge that the trial court properly excluded the introduction of these tax records from the evidence, but nonetheless assert that any reference to them only misled the trier of fact, and bolstered Duggan's credibility, to their detriment. For the reasons that follow, we disagree. ¶ 78 The record reveals that reference to the tax returns arose only after Bogan testified that she was receiving "dividends" from the fund, rather than withdrawals. The trial court then permitted the defendant to use the fund's tax returns, which were mailed to the investors annually, for the limited purpose of showing that the plaintiff had received information from the fund about her balances and withdrawals, so as to have been placed on notice that she was not receiving dividends. Bogan was questioned about receiving the tax returns and about their substance, but the documents were never introduced into evidence. Moreover, in its judgment order, the trial court referenced the tax returns solely in the context of Bogan's impeachment, and Duggan's testimony that he sent the tax returns annually to all investors. The court nowhere relied on the tax returns as substantive evidence. As such, we find no prejudice could have resulted to the plaintiffs from references made to those tax returns. See People v. Taylor, 344 Ill. App. 3d 929, 937 (2003) (In a bench trail, the trial court is presumed to know the law, and that presumption is only rebutted when the record affirmatively shows the contrary).

¶ 79 III. CONCLUSION

¶ 80 For all of the aforementioned reasons, we affirm the judgment of the circuit court. ¶ 81 Affirmed.