APPELLATE COURT OF ILLINOIS, FOURTH DISTRICT
535 N.E.2d 72, 179 Ill. App. 3d 904, 128 Ill. Dec. 858 1989.IL.233
Appeal from the Circuit Court of Champaign County; the Hon. George S. Miller, Judge, presiding.
JUSTICE GREEN delivered the opinion of the court. LUND and KNECHT, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE GREEN
Plaintiffs Ernest H. Huls and Dorothy Marlene Huls appeal from an order of the circuit court of Champaign County dated July 28, 1988, which dismissed plaintiffs' third-amended complaint against defendant Clifton, Gunderson and Company for failure to state a cause of action. (Ill. Rev. Stat. 1985, ch. 110, par. 2-615.) We affirm.
Plaintiffs filed their original complaint on August 12, 1986. After various procedures, on June 6, 1988, they filed a three-count, third-amended complaint which generally alleged defendant, a certified public accounting firm for two business entities (sellers), had breached a duty it owed to plaintiffs, the subsequent purchasers of those businesses. Count I contained the following allegations: (1) a partner of defendant made plaintiffs aware of the two businesses which were for sale; (2) defendant prepared audited financial statements on and expressed in writing opinions concerning the businesses and provided them to plaintiffs during the negotiations to purchase the two businesses; (3) the audited financial statements showed a total equity value in both businesses of $1,066,553; and (4) defendant knew or should have known plaintiffs would base their decision to offer and contract to pay the final negotiated purchase price partially upon those audited financial statements.
Plaintiffs further alleged in count I that: (1) defendant is a member of the American Institute of Certified Public Accountants ; (2) AICPA Rule 101.01 requires CPA firms to maintain a certain degree of independence when expressing an opinion about a company in financial statements; (3) individual partners of defendant had "acted as a member of management" of sellers and had "provided substantial business advice" to them; (4) defendant owed a duty to plaintiffs to disclose their relationship with sellers, and their failure to disclose constituted a breach of that duty; (5) defendant's failure to make disclosure affected plaintiffs' ability to fairly negotiate the purchase of the two businesses; and (6) as a proximate cause of defendant's failure to disclose, plaintiffs contracted to pay $1,433,447 in excess of the combined stated equity value of the two businesses, an amount it "might not [have been] willing to pay had such disclosures been made."
Count II contained the following allegations: (1) AICPA Rule 302.01 provides that a CPA firm shall not charge a contingent fee for professional services rendered; (2) sellers and defendant entered into a contingent fee agreement whereby sellers agreed to pay 5% of the combined sales prices of the two businesses to defendant; (3) defendant prepared audited financial statements on the two businesses and failed to disclose the contingent fee agreement in them; (4) plaintiffs relied upon the statements prepared by defendant; (5) as a proximate result of defendant's failure to disclose, plaintiffs offered and agreed to pay a purchase price to sellers that "included a contingent fee that the sellers were obligated to pay defendant" in the amount of $125,000; and (6) defendant's failure to disclose information further prevented plaintiffs from making informed negotiations, thereby causing them to pay more for the two businesses than they would have paid had the disclosures been made. Plaintiffs further sought punitive damages in count II of their third-amended complaint for defendant's "wilful misconduct."
Finally, count III contained the following allegations: (1) in the audited financial statements which it prepared, defendant misrepresented its independence with regard to sellers; (2) defendant intended to induce plaintiffs to purchase the two businesses by presenting those statements to plaintiffs; (3) in partial reliance on those statements, plaintiffs contracted to purchase the two businesses for a total price of $2,500,000; (4) had defendant truthfully represented its total relationship with sellers, plaintiffs would not have agreed to pay a purchase price in excess of the combined equity value of the businesses; (5) further, due to defendant's misrepresentations, plaintiffs were "deprived of having another CPA review [sellers'] . . . books and financial records"; and (6) as a proximate result of defendant's misrepresentations, plaintiffs sustained damages in the amount of $1,433,447, the amount in excess of the stated combined equity values of the two businesses. Plaintiffs further sought punitive damages in count III of their third-amended complaint for defendant's "wilful
On June 27, 1988, defendant moved to dismiss plaintiffs' third-amended complaint. It contended the complaint was insufficient in law because no facts were alleged which created a duty on behalf of defendant to disclose their involvement with sellers or their fee arrangement, contingent or otherwise. Further, it claimed plaintiffs nowhere alleged defendant's opinions failed to fairly present sellers' financial position or that defendant had negligently prepared the financial statements for the two businesses. Finally, defendant maintained the complaint contained no facts which demonstrated any proximate cause between any alleged act or omission and the damages claimed.
On July 28, 1988, the circuit court dismissed plaintiffs' third-amended complaint with prejudice. In favorably ruling on defendant's motion to dismiss that complaint, the court determined "the alleged breach of duty is not and cannot be a proximate cause of the damages claimed and that the pleading fails to set forth facts upon which the relief requested by plaintiffs can be granted." On appeal, plaintiffs contend each count of their third-amended complaint stated a cause of action against defendant.
Plaintiffs first maintain count I of their third-amended complaint sufficiently stated a cause of action against defendant for fraudulent concealment. They contend AICPA Rule 101.01 created a duty on the part of defendant to disclose its relationship with the sellers, especially since defendant stated the audit "was made in accordance with generally accepted auditing standards," that defendant breached its duty by failing to ...