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Donnybrook Investments Ltd. v. Arthur Andersen LLP

April 20, 2006


The opinion of the court was delivered by: Marvin E. Aspen, District Judge


Plaintiffs Donnybrook Investments et al. ("Donnybrook"), depositors in a failed bank, bring this accounting malpractice claim against the bank's auditor, Arthur Andersen ("Andersen"). Presently before us is Andersen's motion to dismiss based on the applicable statutes of limitations and repose. For the reasons that follow, we convert the portion of the Defendant's motion to dismiss that raises statute of limitations issues into a summary judgment motion, and grant the motion.


The Plaintiffs include 109 creditors of the Trade and Commerce Banks ("TCB") of the Cayman Islands. (Am. Compl. ¶¶ 2 - 110, 118). Andersen provided auditing services to TCB from 1996 through 2000. (Id. ¶ 117). In 1998, the Velox Group, which was owned by Juan Peirano ("Peirano") and various members of his family, acquired TCB. (Id. ¶ 115). While under his control, Peirano fraudulently withdrew funds from TCB. (Id. ¶ 122). He committed this fraud by maintaining two sets of accounting books: one he disclosed to regulators and auditors; the other, which recorded the withdrawals Peirano made from TCB, he kept in secrecy. (Id. ¶ 119). In April 2002, as a result of Peirano's actions, TCB collapsed. (Id. ¶ 122).

On July 5, 2002, a TCB creditor filed a petition with the Grand Court of the Cayman Islands requesting the appointment of a provisional liquidator. (Id. ¶ 123). On August 29, 2002, the Cayman Court appointed H. Jonathan Kahlberg and G. James Cleaver as joint official liquidators and joint provisional liquidators. (Id. ¶ 124). By July of 2002, Kahlberg obtained computer records that demonstrated the fraud and revealed the two different sets of books. (Id. ¶ 129). Donnybrook alleges that Peirano misappropriated over $800 million from TCB. (Id. ¶ 133).

On August 24, 2005, Donnybrook filed their claim against Andersen. According to the plaintiffs, Andersen committed accounting malpractice when it failed to discover Peirano's fraud against TCB's creditors. (Id. ¶ 141). Donnybrook claims that Kahlberg discovered the fraud using generally accepted auditing standards and that Andersen's failure to identify the fraud was reckless. (Id. ¶¶ 141-142).


Although Andersen's motion is entitled "motion to dismiss," resolution of the pending issue through Federal Rule of Civil Procedure 12(b)(6) would be improper. Andersen's primary contention is that Donnybrook's action is barred by the two-year statute of limitations and five-year statute of repose. (Mem. Supp. Mot. at 3-9). We do not engage in jurisdictional fact-finding on the statute of limitations defense; if we refer to matters outside the complaint to determine whether the limitations period bars certain claims, then we must convert the motion to dismiss to a motion for summary judgment. See Fed. R. Civ. P. 12(b) (authorizing the court to convert a motion to dismiss into one for summary judgment governed by the standards of Rule 56); Stark v. Dynascan Corp., 902 F.2d 549, 550 n.1 (7th Cir. 1990). Donnybrook's complaint does not contain the essential information regarding the statute of limitations question. Rather, that information is presented in the various affidavits and attachments submitted with, and in response to, Andersen's motion. Both parties were granted leave to submit additional briefing and/or evidentiary material pursuant to Rule 56. Accordingly, we treat the current motion as one for summary judgment.

Summary judgment is proper only when "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A genuine issue for trial exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). 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 the 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, 106 S.Ct. 2548, 2553 (1986) (internal quotation omitted). Once the moving party meets this burden of production, the nonmoving party "may not rest upon the mere allegations or denials of the adverse party's pleading" but rather "must set forth specific facts showing that there is a genuine issue [of material fact] for trial." Fed. R. Civ. P. 56(e). In considering a motion for summary judgment, the court must read all facts in the light most favorable to the non-moving party. See Anderson, 477 U.S. at 255.


A. Statute of Limitations

Neither party disputes that the limitations period of this claim is governed by the Illinois Accounting Act ("Act"). (Am. Compl. ¶ 137; Mem. Supp. Mot. at 2). Andersen contends that the Act's 2-year statute of limitations bars this action.

Actions based upon tort, contract or otherwise against any person, partnership or corporation registered pursuant to the Illinois Public Accounting Act . . . for an act or omission in the performance of professional services shall be commenced within 2 years from the time the person bringing an action knew or should reasonably have known of such act or omission. 735 ILCS 5/13214.2(a). Under Illinois law, the statute of limitations is triggered "when a person knows or reasonably should know of his injury and also knows that it was wrongfully caused. At that point the burden is upon the injured party to inquire further as to the existence of a cause of action." Lind-Waldock & Co. v. Caan, 691 F. Supp. 57, 62-63 (N.D. Ill. 1988) (quoting Witherell v. Weimer, 85 Ill. 2d 146, 156, 421 N.E.2d 869, 874 (Ill. 1981)).

According to Andersen, the accounting malpractice claim accrued as early as April 2002, the time of TCB's collapse. (Mem. Supp. Mot. at 4). They further argue that the creditor request for provisional liquidators on July 5, 2002 and the appointment of joint official liquidators on August 29, 2002 were likewise sufficient to trigger the statute of limitations. (Id.). Because all three of these events occurred ...

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