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May 21, 1997



Released for Publication June 25, 1997.

The Honorable Justice Gordon delivered the opinion of the court. Mcnulty and Hourihane, JJ., concur.

The opinion of the court was delivered by: Gordon

The Honorable Justice GORDON delivered the opinion of the court:

Dancor International, Ltd. (Dancor), the plaintiff, takes this interlocutory appeal from the dismissal of its accountant malpractice action filed against Friedman, Goldberg & Mintz (Friedman), the defendant. See 155 Ill. 2d R. 304(a). The trial court granted Friedman's section 2-619 motion to dismiss (735 ILCS 5/2-619 (West 1992)) finding that Dancor's lawsuit had not been filed within the applicable statute of limitations period. Dancor appeals from that dismissal order and from the trial court's denial of its motion to reconsider or vacate the dismissal order. For the reasons discussed below, we affirm the dismissal.

On March 24, 1993, Dancor filed a four-count complaint. Counts I and II, which were directed at defendant Friedman, *fn1 respectively alleged breach of contract and professional negligence. Both counts were premised on Friedman's alleged failure, as Dancor's certified public accountants during the period of January 1987 through August 1990, to detect warehouse fraud and embezzlement committed by Arthur Corrigan, Dancor's minority shareholder, officer, director and employee, who maintained Dancor's corporate books, and Linda McGuire, Dancor's office manager and secretary. The fraud and embezzlement allegedly occurred from 1984 through the summer of 1990; and the amounts embezzled totaled approximately $1,279,000. Dancor alleged in its complaint against Friedman that, Friedman was employed to audit, monitor, and issue a report regarding all the books, checks and records maintained in the ordinary course of Dancor's business. Dancor further alleged, inter alia, that Friedman failed to discover and investigate forgeries on checks drawn on Dancor's accounts; altered amounts on checks drawn on Dancor's accounts; discrepancies between payees listed in the disbursement journal and the check stubs and the actual payees and endorsers of checks; check stubs marked void but which were actually cashed; and checks written on Dancor's accounts for reimbursable business expenses but which were actually for nonreimbursable personal expenses. Dancor also alleged that Friedman failed to verify warehouse statements of inventory on hand and negligently relied upon warehouse confirmations or correspondence.

On May 25, 1993, Friedman moved to dismiss Dancor's complaint because it was not filed within the time limits of section 13-214.2 of the Code of Civil Procedure (the Code), which provides that actions against persons or entities registered under the Illinois Public Accounting Act (225 ILCS 450/0.01 et seq. (West 1994)) must be "commenced within two years from the time the person bringing [the] action knew or should reasonably have known of such act or omission." 735 ILCS 5/13-214.2 (West 1992). Friedman argued that Dancor knew or should have known of Friedman's alleged acts or omissions on October 10, 1990, the date Dancor filed its federal lawsuit against Corrigan alleging RICO violations (Racketeer Influenced & Corrupt Organizations Act (18 U.S.C. ยง 1961 et seq.)), fraudulent misrepresentation, breach of fiduciary duty and breach of contract. Friedman argued that since Dancor's complaint was filed on May 23, 1993 rather than by October 10, 1992, it exceeded the two-year period provided by section 13-214.2 and thus was subject to dismissal under section 2-619(a)(5) of the Code (735 ILCS 5/2-619(a)(5) (West 1992)).

Attached to Friedman's motion was a copy of Dancor's 1990 federal complaint against Corrigan. That complaint, which was 35 pages long, alleged 226 specific fraudulent acts by Corrigan including inter alia use of corporate checks for personal expenses, fictitious payees, forgeries, and altered amounts on checks. Each of those alleged fraudulent acts contained specific information as to the date of the check; the recorded amount and the altered amount, where applicable; the named payee and the actual payee; and the recorded reason for the payment and the actual reason for the payment.

In response to Friedman's motion, Dancor argued that Friedman had fraudulently concealed its accounting malpractice by failing to provide Dancor with all of Dancor's records and work papers in August 1990 after Friedman resigned as Dancor's accountants. See 735 ILCS 5/13-215 (West 1992) ("if a person liable to an action fraudulently conceals the cause of action, *** the action may be commenced at any time within 5 years after the person entitled to bring the same discovers that he or she has a cause of action, and not afterwards"). Dancor argued that due to Friedman's concealment of Dancor's accounting records, it did not discover that it had a cause of action against Friedman until August 1991 when its new accountants, Berger, Goldstein & Company (Berger, Goldstein), received enough documentation upon which to form their professional opinion that a viable cause of action existed against Friedman. In support of this argument, Dancor attached the affidavit of James A. Spear, of Berger, Goldstein. In that affidavit Spear stated that in August 1990, he began working on Dancor's financial statements and did not have any of Friedman's work papers or client records. He stated that in the fall of 1990, Friedman forwarded account analyses and working trial balances; and that those papers did not indicate any ground for a malpractice action. Spear also stated that, at his direction, a letter was sent to Friedman on August 21, 1990 requesting their work sheets for the December 31, 1989 working trial balance. Spear averred that Friedman did not send "workpapers concerning testing of transactions and internal control *** [which] would have revealed the failure to perform certain tests necessary to issue a certified accounting opinion." He also stated that Friedman did not comply with a subsequent request to turn over the remainder of its papers on January 16, 1991. Spear averred that in June, July and August 1991, additional papers were forthcoming through various sources, including the DuPage County State's Attorney who was investigating Corrigan. He concluded by stating:

"*** the earliest that I was able to form any professional opinion, based upon local accounting standards, as to the existence of a possible viable cause of action against [Friedman] for accounting malpractice was August, 1991, when I received papers necessary to evaluate possible litigation against [Friedman] on accounting malpractice."

Friedman in reply reargued that on October 10, 1990, when Dancor filed its federal action against Corrigan, Dancor knew or should have known of Friedman's failure to discover Corrigan's alleged fraudulent activities and that Friedman's failure to do so served as the basis for a potential cause of action for professional negligence. Friedman also denied that it refused to promptly provide accounting records to Dancor, contending instead that it "produced all of the documents plaintiff was entitled to by December 5, 1990." In support of that contention, Friedman attached the affidavit of John Kallergis, a partner with the Friedman firm. Kallergis stated that prior to Friedman's resignation, it had provided Dancor with "audited financial statements, unaudited financial statements for fiscal year ended February 28, 1987 and our 1987 inventory analysis *** at the time they were prepared." Kallergis also stated that as of December 5, 1990, pursuant to a deposition subpoena filed in Dancor's federal action against Corrigan, he produced the following documents to Dancor: Dancor's internal work papers; adjusting journal entries prepared by Dancor and any adjusting journal entries prepared by Friedman; Dancor's financial statement prepared by Dancor and Friedman; Dancor's corporation and pension plan income tax returns prepared by Friedman; and individual income tax returns for Daniel Frawley and Arthur Corrigan, principals of Dancor, prepared by Friedman. Kallergis further averred in pertinent part as follows:

"4. Pursuant to my understanding of the Court's ruling at the time, I did not produce Friedman, Goldberg & Mintz's audit procedures, checklists and internal memoranda. Additionally, I 'whited out' Friedman, Goldberg & Mintz's notes written in the margins of various documents prepared by others. *** In other words, I did not produce our internal notes and conclusions relating to Dancor's internal books and records. All of Dancor's workpapers [sic], however, with our notes deleted, were produced.

5. I did not withhold any documents which I understand [sic] to be the property of Dancor."

On September 17, 1993, the trial court granted Friedman's motion to dismiss. The court found that the information Dancor had in its possession on October 10, 1990, which enabled it to file a 35-page civil federal RICO lawsuit against Corrigan alleging 226 separate fraudulent check ...

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