information from her own sources and consequently is chargeable with knowledge about the business' flaws. As such, she cannot have reasonably relied upon Zimbler's alleged representations about the business.
In order to avoid summary judgment, Dougherty "must set forth enough facts from which a jury could find by clear and convincing evidence" that she justifiably relied upon Zimbler's "alleged misrepresentation[s]." Teamsters Local 282 Pension Trust Fund v. Angelos, 839 F.2d 366, 370 (7th Cir. 1988). In Illinois, when determining whether a plaintiff's reliance was reasonable, "all of the facts which plaintiff had actual knowledge of, as well as all of those it might have learned if it had used ordinary prudence, must be taken into account; if ample opportunity existed to discover the truth, then reliance is not justified." Central States Joint Bd. v. Continental Assurance Co., 117 Ill. App. 3d 600, 607, 453 N.E.2d 932, 937, 73 Ill. Dec. 107 (1st Dist. 1983). "Where it appears that a person . . . has actually investigated and received information from his own sources rebutting the misrepresentation[,] he is not in a position to claim he was deceived." Dixie-Portland Flour Mills, Inc. v. Nation Enterprises, Inc., 613 F. Supp. 985, 990 (N.D. Ill. 1985) (quoting Peterson Indus., Inc. v. Lake View Trust & Sav. Bank, 584 F.2d 166, 168 (7th Cir. 1978)). "A person charging fraud 'may not close his eyes to obvious facts.'" Peterson Indus., 584 F.2d at 168 (quoting Costello v. Liberty Mut. Ins. Co., 38 Ill. App. 3d 503, 507, 348 N.E.2d 254, 257 (1st Dist. 1976)).
On the other hand, "reasonableness is measured differently in fraud cases than in other contexts; 'the victim of a deliberate fraud . . . need only avoid deliberate or reckless risk-taking.'" Consolidated Bearings, 913 F.2d at 1229 (quoting Ampat/Midwest, Inc. v. Illinois Tool Works, 896 F.2d 1035, 1041-42 (7th Cir. 1990)). "Ordinary prudence" does not require a buyer "to assume that [the] seller is a liar" or "to dig beneath apparently adequate assurances." Id. at 1229-30.
Here, Dougherty was entitled to assume that the statements of past profitability she received were accurate, and to rely on them. Although it is undisputed that Dougherty did attempt to investigate the business further, Zimbler admits that he did not provide any information to Gilbert or Dougherty. Nor is there any evidence that Gilbert or Dougherty had access to other sources of information about the business that would have contradicted the assurances Dougherty had received. In these circumstances the Court cannot agree with Zimbler's suggestion that Dougherty indisputably "buried her head into the sand" with regard to her own investigation, especially drawing all the necessary inferences in Dougherty's favor. Thus, the motion for summary judgment on Count I is denied.
B. Count II: Negligent Misrepresentation
Zimbler contends that he is entitled to summary judgment for Dougherty's negligent misrepresentation claim because Dougherty does not allege facts necessary to overcome the restrictions on accountants' liability set forth in § 30.1 of the Illinois Public Accounting Act, 225 ILCS 450/30.1 (West 1995). He argues that the statute shields an accountant from negligence or malpractice actions except where the plaintiff either (a) alleges privity of contract, or (b) alleges that the accountant expressly stated in a writing, an intent for the plaintiff to rely upon the accountant's professional services. Zimbler maintains that Dougherty's negligent misrepresentation claim must fail as a matter of law because she admits that she did not have a contract with Zimbler, and Zimbler did not, in writing, authorize her to rely upon his services.
Section 30.1 of the Illinois Public Accounting Act delineates a narrow scope for accountants' liability to third parties. See Robin v. Falbo, No. 91 C 2894, 1992 U.S. Dist. LEXIS 11075, 1992 WL 188429 at *8-9 (N.D. Ill. July 24, 1992); Endo v. Albertine, 812 F. Supp. 1479, 1495 (N.D. Ill. 1993); President Lincoln Hotel Venture v. Bank One, Springfield, 271 Ill. App. 3d 1048, 1055, 649 N.E.2d 432, 438, 208 Ill. Dec. 376 (1st Dist. 1994). It provides that, with only two exceptions, "no person, partnership or corporation licensed or authorized to practice [public accountancy] under this Act . . . shall be liable to persons not in privity of contract . . . for civil damages resulting from acts, omissions, decisions or other conduct in connection with professional services performed . . . ." 225 ILCS 450/30.1. The first exception to the privity requirement permits liability for "such acts, omissions, decisions or conduct that constitute fraud or intentional misrepresentations." 225 ILCS 450/30.1(1). As noted above, this exception applies to Dougherty's fraud claim.
Subsection 2 provides the second exception, which governs actions for negligent misrepresentation. That subsection allows liability if the accountant "was aware that a primary intent of the client was for the professional services to benefit or influence the particular person bringing the action," but only if the accountant "(i) identifies in writing to the client those persons who are intended to rely on the services, and (ii) sends a copy of such writing or similar statement to those persons identified in the writing or statement." 225 ILCS 450/30.1(2). The first clause of subsection 2 permits third party liability actions where the plaintiff alleges that the accountant knew that the client intended for the plaintiff to rely upon the accountant's services. However, the latter part of subsection 2 qualifies the first clause with the requirements for written identification and notification.
Robin v. Falbo, No. 91 C 2894, 1992 U.S. Dist. LEXIS 11075, 1992 WL 188429 (N.D. Ill. July 24, 1992), was the first case to consider the writing requirement provisions of subsection 2. In Robin, the plaintiffs alleged that the defendants induced them to invest in a limited partnership by making false and misleading statements and omissions of material facts. Robin, 1992 U.S. Dist. LEXIS 11075, 1992 WL 188429 at *1. One of the defendants was an accounting firm for the limited partnership. The plaintiffs alleged that the accounting firm owed them a duty because the firm was aware that they were likely investors. Id. at *6-8.
The plaintiffs in Robin asserted that, under Illinois common law, accountants could be held liable for representations made to a particular class of third party plaintiffs, where the purpose and intent of an accountant-client relationship was to benefit or influence those plaintiffs. Id. at *7 (citing Brumley v. Touche, Ross & Co., 139 Ill. App. 3d 831, 487 N.E.2d 641, 93 Ill. Dec. 816 (2d Dist. 1985)). The court acknowledged the argument, but observed that the Illinois case law supporting the plaintiffs' position predated the enactment of § 30.1 of the Illinois Public Accounting Act, which directly addressed the scope of an accountant's liability to non-privity parties and in that respect superseded Brumley. Id. at *8. The court went on to hold that subsection 2 shields an accountant against liability for negligent misrepresentation to a third person except where the accountant has identified and notified that person, in writing, that the client intends for the person to rely upon the accountant's services. Id. at *9.
The court recognized that its interpretation of § 30.1 "causes an odd result, in that it gives the accountant, and not the client, the right to determine to which non-privity parties he will be liable." Id. at *9 However, the court held that this was the only proper interpretation of the statutory language, given the legislative history of the statute.
To date, no Illinois state court has published a decision interpreting the writing requirements of § 30.1(2), although another federal court has followed Robin. See Endo v. Albertine, 812 F. Supp. 1479, 1495-96 (N.D. Ill. 1993) (dismissing plaintiff's claim for failing to allege privity, intentional wrongdoing or written notification). See also Michael J. Polelle, Accountant's Privity Shield: An Illinois Mistake?, 38 DePaul L. Rev. 685 (1989) (discussing the legislative history and interpretation of § 30.1, which make it effectively impossible to sue an public accountant for negligent misrepresentation). This Court finds no basis for adopting a different interpretation.
Dougherty advances two arguments against applying § 30.1 here. First, Dougherty argues that § 30.1 does not apply to Zimbler's conduct because Zimbler's representations were made outside the ordinary scope of his professional accounting services. In her memorandum opposing Zimbler's motion, she contends that, by engaging in face-to-face negotiations, Zimbler "crossed the line from accountant to sales assistant," and made his representations as Bero's "creditor, long-time friend and business broker." Second, Dougherty argues that § 30.1(2) should be narrowly interpreted to require a written authorization only with regard to an accountant's written work, and not with regard to face-to-face oral representations to third-parties.
Dougherty's first argument is unconvincing. Section 30.1 applies to an accountant's "conduct in connection with professional services performed." It Dougherty herself asserts that Zimbler represented to her that the information that he conveyed was "gained through his accounting services for Bero." She claims that Zimbler's activities as Bero's accountant made him aware that his representations about the business' liabilities, net worth, sales volumes, and profits were not accurate or complete. Moreover, Dougherty states that Zimbler's experience as Bero's accountant leant "an air of reliability to the representations he made about Bero's business." This Court is unpersuaded that an accountant's conduct is not "in connection" with professional services performed solely because the accountant's information is meant to facilitate the sale of a client's business. Indeed, § 30.1(2) specifically recognizes, and applies where, "a primary intent of a client was for the professional services to . . . influence a particular [third party]."
Dougherty's second argument urges this Court to interpret the written identification and notification requirements of § 30.1(2) to apply only where a person relies upon an accountant's written work, and not where an accountant made face-to-face oral representations. She argues that "the legislature did not intend to immunize accountants from . . . [oral] discussions with their client's potential buyers if they do not present a written letter providing that the statements he is about to make may be relied upon." However, Dougherty offers no basis or authority for such a limited statutory construction. Instead, the statute applies broadly to "acts, omissions, decisions or other conduct."
Dougherty notes that if a non-accountant such as a business broker had made the same alleged misrepresentations, that broker could be held liable. See Richmond v. Blair, 142 Ill. App. 3d 251, 256, 488 N.E.2d 563, 567, 94 Ill. Dec. 564 (1st Dist. 1985) (recognizing a cause of action for negligent misrepresentation against a realtor); Duhl v. Nash Realty , 102 Ill. App. 3d 483, 494, 429 N.E.2d 1267, 1276, 57 Ill. Dec. 904 (1st Dist. 1981) (same; real estate broker). We recognize that the provisions of subsection 2 essentially shield accountants from any unwanted liability for negligent misrepresentation to third-parties, and agree that this protection may cause anomalous results on occasion. This is a matter for the Illinois legislature, however, not this Court. Under existing Illinois law, unless the plaintiff is in privity of contract with the accountant, the accountant will not be held liable in an action for negligence where the accountant has not taken the affirmative steps of written identification and notification to establish liability to the plaintiff. Dougherty does not allege that she was in privity of contract with Zimbler or that she received notification of a writing authorizing her to rely upon Zimbler's work. Thus, Zimbler's motion for summary judgment on Count II of Dougherty's claim is granted.
For all of the foregoing reasons, Zimbler's Motion for Summary Judgment is denied as to Count I and granted as to Count II. A Final Pretrial Order in this case shall be due on April 30, 1996, and this case will be placed on the Court's May trial calendar. A status hearing will be held in open court on April 22, 1996 at 9:00 a.m. for the sole purpose of setting a firm trial date.
United States District Judge
April 4, 1996