Court of Appeals of Illinois, First District, Fourth Division
ARLENE ATLAS, MARSHALL ATLAS, HBZ INC., and TAFH LLC, Plaintiffs-Appellants,
MAYER HOFFMAN MCCANN, PC, CBIZ, INC., CBIZ MHM, LLC, ROBERT WILNEFF, MARIA CRAWFORD, and JUSTIN BIAGI, Defendants-Appellees, (Judith Berger, Defendant.)
from the Circuit Court of Cook County No. 13 L 7057 Honorable
Patrick J. Sherlock, Judge Presiding.
Attorneys for Appellants: John S. Xydakis, of the Law Offices
of John S. Xydakis, of Chicago, for appellants.
Attorneys for Appellees: Kimberly E. Blair, Joseph J.
Stafford, and Adam T. Ernette, of Wilson, Elser, Moskowitz,
Edelman & Dicker, LLP, of Chicago, for appellees.
JUSTICE REYES delivered the judgment of the court, with
opinion. Justices Gordon and Burke concurred in the judgment
1 Marshall Atlas (Marshall) and Arlene Atlas (Arlene), a
married couple, were in the business of purchasing delinquent
real estate tax certificates from local governments. Judith
Berger (Berger) was their employee. Marshall and Arlene
operated their business through three companies: (1) HBZ Inc.
(HBZ), which was partially owned by Arlene and Berger; (2)
TAFH LLC (TAFH), which was partially owned by Marshall,
Arlene, and Berger; and (3) Salta Group, Inc. (Salta), which
was owned solely by Marshall.
2 Berger allegedly embezzled funds from HBZ, TAFH, and Salta,
which resulted in significant legal and financial
difficulties for Marshall, Arlene, and their companies,
including Salta's bankruptcy. Marshall, Arlene, HBZ, and
TAFH (collectively plaintiffs) filed an action in the circuit
court of Cook County, alleging their accountants should have
discovered Berger's embezzlement. Salta was not named as
a plaintiff due to its pending bankruptcy proceedings and is
not a party to this appeal. The defendants were (1) Berger,
and (2) plaintiffs' accountants, the "Mayer
defendants." The Mayer defendants fall into three
categories: (i) Mayer Hoffman McCann, P.C. (Mayer), which is
the firm that contracted to perform accounting services for
plaintiffs and which plaintiffs alleged is liable for its
employees' acts and omissions under the theory of
respondeat superior; (ii) CBIZ, Inc. (CBIZ) and CBIZ
MHM, LLC (CBIZ MHM), which are affiliates of Mayer and which
plaintiffs alleged are liable for their employees' and
Mayer's acts and omissions under theories of
respondeat superior and joint enterprise liability;
and (iii) Robert Wilneff (Wilneff), Maria Crawford
(Crawford), and Justin Biagi (Biagi), who are the individual
accountants employed by Mayer, CBIZ, and/or CBIZ MHM, and who
performed the accounting services for plaintiffs.
3 Plaintiffs appeal the order of the circuit court of Cook
County dismissing their accounting malpractice claims
asserted in their third amended complaint (amended
complaint)-the operative complaint in this matter-against the
Mayer defendants pursuant to sections 2-619(a)(5) and (9) of
the Code of Civil Procedure (Code) (735 ILCS 5/2-619(a)(5),
(9) (West 2014)). Plaintiffs had previously appealed the
circuit court's order granting the Mayer defendants'
motion to dismiss the amended complaint in Atlas v. Mayer
Hoffman McCann, P.C, 2016 IL App (1st) 151472-U. This
court dismissed the appeal for lack of appellate jurisdiction
because the circuit court had dismissed only the counts in
the amended complaint against the Mayer defendants, and the
two counts against Berger remained pending. Id. In
addition, the dismissal order did not contain language
sufficient to confer appellate jurisdiction pursuant to Rule
304(a). Id. Upon remand, plaintiffs filed a motion
for leave to file a fourth amended complaint against the
Mayer defendants, which the circuit court denied. The Mayer
defendants then requested, and were granted, a Rule 304(a)
finding as to the order dismissing the accounting malpractice
claims asserted in the amended complaint.
4 On appeal, plaintiffs contend that the circuit court
committed reversible error when it dismissed their accounting
malpractice claims against the Mayer defendants because they:
(1) are liable to plaintiffs pursuant to the Illinois Public
Accounting Act (Act) (225 ILCS 450/30.1 (West 2014)); (2)
failed to professionally provide all of their accounting
services; and (3) improperly refuted the allegations of the
amended complaint based on the exhibits attached to the
motion to dismiss. Plaintiffs further argue the circuit court
erred in denying them leave to file a fourth amended
complaint. For the reasons that follow, we affirm.
5 I. BACKGROUND
6 Marshall and Arlene were in the business of purchasing
delinquent real estate tax certificates, which created liens
on a property, from local governments. They operated this
business through their companies, HBZ, TAFH, and Salta (a
non-party) (the companies). Berger was employed in an
administrative capacity by the companies and did not
participate in the actual running of the business.
7 The companies financed the purchase of tax certificates
with bank loans, which were personally guaranteed by Marshall
and Arlene. The companies would then post the tax
certificates as collateral. When the homeowners finally paid
their past-due taxes, the companies would redeem the tax
certificates from the local governments, which would repay
the companies their purchase price, plus interest and fees.
The interest and fees were in excess of the amount of
interest the companies owed to the banks. The companies would
then use the money to repay the banks and keep the balance as
profit. The business thus involved purchasing tax
certificates and pledging them as collateral for loans with
which to purchase additional certificates.
8 The amended complaint set forth four counts against the
Mayer defendants for: (I) violation of the Act; (II)
professional negligence; (III) willful and wanton
professional negligence; and (IV) breach of fiduciary duty.
None of the claims asserted by plaintiffs against the Mayer
defendants sounded in breach of contract. The amended
complaint further set forth two counts against Berger for
negligence and conversion (counts V and VI), however, these
last two counts are not relevant to this appeal. The amended
complaint was premised on the following allegations.
9 Since 1998, Mayer or its predecessor prepared quarterly
audits for Salta and performed additional accounting work for
Salta, HBZ, and TAFH, including bookkeeping and preparing
financial statements, compilation reports, and tax returns.
The Mayer defendants also prepared the personal income tax
returns for Marshall and Arlene. In the Salta audits, the
Mayer defendants consistently reported that the
companies' financial statements fairly represented their
financial position and were in conformity with generally
accepted accounting principles (GAAP). Marshall and Arlene
relied on the Salta audits-along with the financial
statements and compilation reports prepared by the Mayer
defendants for Salta, HBZ, and TAFH-and continued to
personally guarantee the banks' loans. Unbeknownst to
plaintiffs, however, for numerous years Berger had been
providing the banks with duplicate tax certificates that had
already been redeemed or had been used as collateral for
other loans. Berger would then redeem the original tax
certificates and convert the funds for her own use. As a
result, the companies' lenders called the loans and
Marshall and Arlene's guarantees, seized plaintiffs'
collateral, and foreclosed on Marshall and Arlene's home.
10 Plaintiffs alleged that through the Salta audits, the
Mayer defendants should have identified numerous
misrepresentations which were contained in the financial
statements of all three companies. The amended complaint,
however, did not allege that the Mayer defendants provided
auditing services to HBZ or TAFH. According to plaintiffs,
the Mayer defendants breached the following duties which
plaintiffs characterized as "standard auditing
procedures": (1) to compare the tax certificates to the
banks' records and identify any discrepancy in the
companies' records; (2) to obtain and compare evidence
from various government entities regarding the tax
certificates to the companies' records; (3) to determine
whether the tax certificates had been redeemed or had
expired; (4) to determine whether the companies returned the
proceeds from the redeemed tax certificates to the lending
banks; (5) to uncover potential mistakes in the
companies' books; and (6) to assess the susceptibility of
the companies' financial statements to fraud. Plaintiffs
alleged these duties extended to Marshall and Arlene because
the Mayer defendants knew the couple relied upon the
financial statements and compilation reports for the
companies, as well as the Salta audits, in order to determine
whether to guarantee the loans. The amended complaint further
alleged that the breach of these duties by the Mayer
defendants proximately caused plaintiffs' damages.
11 Regarding Berger, plaintiffs alleged that, without their
knowledge or consent, she was lining her own pockets at the
expense of the plaintiffs and was "secretly acting
adversely to Plaintiffs and entirely for her own
purposes." As a result of her willful and malicious
conversion of the funds, plaintiffs suffered damages.
Plaintiffs further alleged that Berger had a duty to act
reasonably in maintaining accurate records from the companies
and that her failure to do so proximately caused them
damages. No exhibits were attached to the amended complaint.
12 The Mayer defendants filed a motion to dismiss counts I-IV
of the amended complaint pursuant to section 2-619.1 of the
Code (735 ILCS 5/2-619.1 (West 2014)). In addition to arguing
that plaintiffs' allegations were insufficient and were
an attempt to state a malpractice action based on auditing
services for Salta, the Mayer defendants asserted a myriad of
grounds for dismissal pursuant to section 2-619 of the Code.
First, they contended that pursuant to section 2-619(a)(9),
their liability to plaintiffs was precluded under section
450/30.1 of the Act (225 ILCS 450/30.1 (West 2014)), which
provides that accountants are not liable to individuals or
entities not in privity of contract with them, unless the
accountant was aware the client intended for the services to
benefit a third party; but if an accountant identifies any
individuals who are intended to rely on the services and
notifies the client and the individuals in writing, then the
accountant is liable only to the client and the individuals
identified. The Mayer defendants specifically ...