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TERRELL v. CHILDERS

January 25, 1996

CHARLES W. TERRELL and KAREN TERRELL, Plaintiffs,
v.
JOHN H. CHILDERS, MICHAEL CHILDERS, FRANK SCHUETTE, JR., JOANN CHILDERS, ELWOOD KREGER, TALENT SERVICES, INC., an Illinois corporation, and BERCOON, WEINER, GLICK & BROOK, an Illinois corporation, Defendants.



The opinion of the court was delivered by: ASPEN

 MARVIN E. ASPEN, Chief Judge:

 Plaintiffs Charles and Karen Terrell bring this action against their former financial management company, Talent Services, Inc., and several of its executives and agents, John ("Jack") Childers, Michael Childers, Frank Schuette, and JoAnn Childers (the TSI Defendants), and against the Terrells' former accounting firm, Bercoon, Weiner, Glick & Brook, and one of its partners, Elwood Kreger (the Kreger Defendants). The twelve-count complaint seeks recovery under various state and federal causes of action. Presently before the court are two summary judgment motions filed by the Kreger Defendants, and one summary judgment motion filed by Jack and JoAnn Childers. For the reasons set forth below, we grant in part and deny in part the Kreger Defendants' motions for summary judgment, and deny Jack and JoAnn's motions for summary judgment.

 I. Background

 Charles W. Terrell ("Walt") began playing professional baseball in 1980. In December 1985, a few years after breaking into the major leagues as a starting pitcher, Walt entered into a Business Management Agreement with TSI. Generally, the Agreement called for TSI to manage Walt's financial affairs, including bookkeeping services; budget advice and preparation; tax advice, planning, and return preparation; expense administration; and insurance and estate planning. In return, TSI received an annual fee equal to five percent of Walt's baseball salary. During the time Walt was a TSI client, Jack Childers was TSI's President, Michael Childers was an officer of TSI, and Frank Schuette was TSI's vice-president of operations; JoAnn Childers is Jack's wife. TSI retained Elwood Kreger, a partner at Bercoon, Weiner, Glick & Brook, to perform accounting services, prepare tax returns, and render tax advice and planning for the Terrells. Pls.' 12(N) P 3, Appendix 256-57; Pls.' 12(N) Additional Statement of Facts P 2, Appendix 5, 18.

 By March 1991, the relationship had soured, and Walt informed Jack that the management agreement would not be renewed next year. According to the plaintiffs, from the start of the relationship, TSI misrepresented the plaintiffs' financial status by lacing annual reviews provided to the Terrells with accolades such as "super" and "utterly fantastic," when in fact TSI had mismanaged their finances and defrauded the Terrells. Primarily, the plaintiffs point to four examples of mismanagement or fraud: (1) the purchase of a historic property in Philadelphia through a general partnership named 2134 Pine Street Associates; (2) the investment in Strata Energy Resources Diversified Oil and Gas Fund, a California limited partnership; (3) the purchase of a fixed annuity from Manufacturers' Life Insurance Company; and (4) repeated overpayment of federal income tax. *fn1" On April 23, 1993, the plaintiffs filed this suit against the TSI Defendants; on December 13, 1994, we granted leave to amend the complaint in order to add the Kreger Defendants. The Amended Complaint asserts twelve counts: (1) breach of contract by TSI; (2) breach of fiduciary duty by Michael, Jack, Schuette, Kreger, and their respective firms; (3) common law fraud by Jack, Michael, Schuette, and TSI; (4) common law fraud by the Kreger Defendants; (5) conspiracy to commit fraud by Jack, Michael, JoAnn, Schuette, and Kreger; (6) negligent misrepresentation by Jack, Michael, Schuette, and TSI; (7) negligent misrepresentation by Kreger and his firm; (8) a declaratory judgment for indemnity against Jack, Michael, Schuette, and TSI; (9) accounting malpractice by Kreger and his firm; (10) fraud under the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1-12; (11) racketeering activity in violation of a provision of the Racketeer Influenced and Corrupt Organizations chapter (RICO), 18 U.S.C. § 1962(c), against Jack, Michael, Schuette, and Kreger and his accounting firm; and (12) conspiracy to commit racketeering activity in violation of RICO, § 1962(d), against Jack, Michael, JoAnn, Schuette, and Kreger and his accounting firm.

 Presently before this court are three motions for summary judgment: (1) the Kreger Defendants' motion arguing that the causes of action are untimely under the applicable statutes of repose and limitation, and that the evidence fails to show that the Kreger Defendants owed a fiduciary duty to the plaintiffs; (2) the Kreger Defendants' motion arguing that Kreger did not "conduct or participate in the conduct of" TSI's affairs in violation of RICO, § 1962(c); and (3) Jack and JoAnn Childers' motion arguing that they had insufficient involvement with the plaintiffs to render them liable on any count. We address each motion in turn.

 II. Standard for Reviewing Motions for Summary Judgment

 Under the Federal Rules of Civil Procedure, summary judgment is appropriate if "there is no genuine issue as to any material fact, and . . . the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). This standard places the initial burden on the moving party to identify "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (quoting Fed. R. Civ. P. 56(c)). Once the moving party has done this, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). In deciding a motion for summary judgment, the court must read all facts in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991).

 III. Kreger Defendants

 A. Statute of Repose

 In their first summary judgment motion, the Kreger Defendants argue that the state common law claims directed at them are time-barred, at least in part, by the applicable statute of repose. In support, the Kreger Defendants point to the Illinois statute of repose, 735 ILCS 5/13-214.2(b), particularly applicable to actions against accountants:

 Although the Terrells filed this suit against the TSI Defendants on April 23, 1993, the plaintiffs did not bring suit against the Kreger Defendants until the Amended Complaint was filed on December 13, 1994. According to the Kreger Defendants, much of the alleged wrongdoing occurred prior to December 13, 1989, and thus the five-year statue of repose bars the common law claims at least insofar as the claims are grounded on the stale wrongdoing. *fn2"

 A repose period "'gives effect to a policy different from that advanced by a period of limitations; [the period of repose] is intended to terminate the possibility of liability after a defined period of time, regardless of a potential plaintiff's lack of knowledge.'" Cunningham v. Huffman, 154 Ill. 2d 398, 609 N.E.2d 321, 325, 182 Ill. Dec. 18 (Ill. 1993) (alteration in original) (quoting Mega v. Holy Cross Hosp., 111 Ill. 2d 416, 490 N.E.2d 665, 668, 95 Ill. Dec. 812 (Ill. 1986)).

 In the instant case, the plaintiffs base their causes of action against the Kreger Defendants on several instances of nondisclosure; for the most part, these nondisclosures are connected with transactions that the TSI Defendants arranged for Walt. Under § 13-214.2(b), any "omissions" that occurred five years prior to suit are time-barred. It is not a simple matter, however, to determine whether there exists a genuine issue of material fact as to the time of the alleged omissions; although the Kreger Defendants point out the timing of the underlying transactions, Kreger Defs.' 12(M) PP 21-25, it is not necessarily true that Kreger contemporaneously became aware (or, for the claims grounded on the fiduciary duty of care and negligence, should have become aware) of the transactions. And the plaintiffs fail to respond to the statue of repose argument. From what we can garner from the Kreger Defendants' Local Rule 12(M) Statement and the evidence to which they cite, we can conclude that the allegedly wrongful omissions contained in Amended Complaint PP 100(a), (b), 118(a), (b), 148(a), (b), occurred prior to December 13, 1989, and that at least part of the omissions contained in Amended Complaint PP 100(h), (i), (j), 118(h), (i), (j), 148(h), (i), (j), are time-barred as well.

 First, the Kreger Defendants' failures to disclose that JoAnn Childers twice received so-called "lease-up fees" paid by Pine Street Associates occurred prior to 1989. The fees were paid in 1986 and 1987, Kreger Defs.' 12(M) P 21, and Kreger became aware of the fees in the course of preparing Pine Street's tax forms and JoAnn's tax returns in the following years, see Pls.' 12(N), Appendix. 169-71, 261-62; id. P 22(e)(1). Accordingly, the statute of repose bars the plaintiffs' attempt to recover for the Kreger Defendants' nondisclosures of the "lease-up fees." Amended Compl. PP 100(a), 118(a), 148(a).

 Next, the Kreger Defendants' failure to inform the plaintiffs that Pine Street Association was structured as a general partnership occurred prior to 1989. Pine Street's formative documents were executed in 1985 and 1986. Kreger Defs.' 12(M) P 22. In 1986, Kreger began serving as Pine Street's accountant, and he became aware of the partnership agreement while preparing Pine Street's tax forms. Pls.' 12(N) Appendix. 163, 167. Thus, the nondisclosure of the plaintiffs' "potential exposure to liability" also occurred prior to 1989 and is time-barred. Amended Compl. PP 100(b), 118(b), 148(b).

 Additionally, the statute of repose bars in part the Terrells' allegation that the Kreger Defendants failed to disclose that JoAnn deducted nearly $ 60,000 in office expenses on her 1985-1991 tax returns, when in fact she did not maintain an office. Amended Compl. PP 100(h), 118(h), 148(h). Kreger prepared JoAnn's 1985-1991 tax returns, Pls.' 12(N), Appendix 36-38, 158, and the undisputed evidence allows for the reasonable inference that, when preparing her taxes, Kreger was aware or should have been aware that JoAnn did not incur office expenses, id. Appendix., 172, 182. *fn3" Accordingly, § 13-214.2(b) bars the plaintiffs' reliance on the nondisclosures that occurred prior to December 13, 1989 as grounds for recovery. Similarly, the statute of repose bars several of the Kreger Defendants' failures to inform Walt that he should decrease his W-2 tax withholdings in order to avoid overpaying federal and state taxes. Amended Compl. PP 100(i), (j), 118(i), (j), 148(i), (j). Those tax returns prepared prior to December 13, 1989 cannot constitute the basis for recovery. Thus, the allegations in Amended Compl. PP 100(h)-(j), 118(h)-(j), 148(h)-(j), are time-barred in part.

 In sum, § 13-214.2(b) bars the plaintiffs" common law causes of action insofar as the claims are grounded on "act[s] or omission[s]" that occurred prior to December 13, 1989. Based on the parties' arguments and the evidence they place before us, we conclude that the statute of repose bars the allegations in Amended Compl. PP 100(a), (b), 118(a), (b), 148(a), (b), and bars in part the allegations in Amended ...


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