Builders Bank v. Barry Finkel & Associates

• Decision Date: 05 May 2003
• Docket Number: No. 1-01-3996.,1-01-3996.
• Parties: BUILDERS BANK, Plaintiff-Appellant, v. BARRY FINKEL AND ASSOCIATES, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

790 N.E.2d 30

339 Ill. App.3d 1

273 Ill.Dec. 888

BUILDERS BANK, Plaintiff-Appellant, v. BARRY FINKEL AND ASSOCIATES, Defendant-Appellee.

No. 1-01-3996.

Appellate Court of Illinois, First District, First Division.

May 5, 2003.

Richard D. Grossman, Law Offices of Richard D. Grossman, Chicago, for Appellant.

Christine L. Olson, Hinshaw & Culbertson, Chicago, for Appellee.

Justice O'MALLEY delivered the opinion of the court:

Plaintiff, Builders Bank, brought this action against defendant Barry Finkel & Associates, P.C., to recover losses allegedly sustained from defendant's professional malpractice and negligent misrepresentation. Plaintiff alleges that it relied upon reviewed financial statements that defendant prepared for Urkov Manufacturing Company (UMC) for purposes of lending UMC $1.5 million. Defendant filed a motion to dismiss pursuant to section 2-619 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-619 West (2000)). The trial court granted defendant's motion to dismiss plaintiff's amended complaint. Plaintiff appeals claiming that the trial court erred by misinterpreting section 30.1 of the Illinois Public Accounting Act (the Act) (225 ILCS 450/30.1 (West 2000)).

BACKGROUND

The following facts are derived from the well-pleaded facts in plaintiff's amended complaint and the reasonable inferences drawn therefrom, which for purposes of this appeal must be accepted as true (In re Chicago Flood Litigation, 176 Ill.2d 179, 184, 223 Ill.Dec. 532, 680 N.E.2d 265 (1997)), as well as the various evidentiary materials submitted by both parties in connection with defendant's motion to dismiss.¹ See Lawson v. City of Chicago, 278 Ill.App.3d 628, 634, 215 Ill.Dec. 237, 662 N.E.2d 1377 (1996) (in ruling on a section 2-619 motion for dismissal, the court may properly consider "external submissions of the parties"); In re Petition for Submittal of the Question of Annexation to the Corporate Authorities of the City of Joliet, 282 Ill.App.3d 684, 688, 218 Ill.Dec. 241, 668 N.E.2d 1073 (1996) (court may consider when ruling on section 2-619 motion to dismiss "pleadings, depositions, affidavits [citations], and other evidence offered by the parties").

In November 1998, UMC, a private corporation then engaged in the distribution of upholstery, designer fabrics and custom draperies, applied for a business loan from plaintiff. In connection with the loan and at plaintiff's request, defendant, UMC's long-time accounting firm, furnished plaintiff with reviewed financial statements, dated July 7, 1998, concerning UMC's operations for the years ending June 30, 1998, and June 30, 1997. Defendant further supplied projected consolidated financial statements, dated October 15, 1998, for the year ending September 30, 1999.

Plaintiff alleges that when defendant prepared the projected statements for UMC in October 1998, it did so knowing that UMC intended to use the statements primarily to influence UMC's lenders. A loan preparation document prepared by plaintiff's staff during consideration of UMC's application utilized the reviewed statements prepared by defendant. Moreover, plaintiff's presenting officer used the projected statements prepared by defendant as evidence of UMC's future profitability. The reviewed statements listed, inter alia, a value for inventory in excess of $2.5 million. The stated value of the inventory, however, was purportedly inflated and the inventory was worth much less than the value stated in the financial statements.

On November 24, 1998, plaintiff requested that defendant furnish it with additional financial statements for the years prior to those ending June 30, 1997, and June 30, 1998. Finkel personally consulted with UMC and sent financial statements for the years ending June 30, 1995, and June 30, 1996, either to plaintiff or to UMC, which then sent them to plaintiff.

On November 24, 1998, plaintiff approved a loan to UMC in the amount of $1.3 million. According to the complaint, plaintiff specifically relied on the reviewed and projected financial statements prepared and submitted by defendant in making its decision to grant the loan.

On February 26, 1999, Finkel and UMC's president, Morrie Urkov, personally met with plaintiff's president and the senior vice-president to discuss a UMC request to increase the original loan amount by $200,000, to $1.5 million. At the meeting, Finkel personally provided plaintiff with consolidated financial statements, dated February 4, 1999, for UMC for the six months ending December 31, 1998, which showed over $2.7 million in UMC inventory for both 1997 and 1998. Finkel reviewed these statements with plaintiff's president and senior vice-president.

The new loan proposal was subsequently presented to plaintiff's board of directors (Board). The proposal included a full analysis of the financial information contained in the statements prepared by defendant and specifically used the statements for the year ending December 31, 1998, to calculate the loan amount.

On March 17, 1999, the Board, allegedly acting in substantial reliance on the financial statements prepared by defendant, approved an increase in the amount of UMC's original loan by the requested $200,000 following discussions with Finkel. Following the loan increase, UMC experienced financial hardship and ceased its operations on November 30, 1999. The inventory listed in the financial statements by defendant was subsequently liquidated for approximately $50,000.

ANALYSIS

The purpose of involuntary dismissal under section 2-619 of the Code is to afford litigants a means to dispose of issues of law and easily proved issues of fact at the onset of the case, reserving disputed questions of fact for trial. Zedella v. Gibson, 165 Ill.2d 181, 185, 209 Ill. Dec. 27, 650 N.E.2d 1000 (1995); Goran v. Glieberman, 276 Ill.App.3d 590, 592, 213 Ill.Dec. 426, 659 N.E.2d 56 (1995). A motion to dismiss pursuant to section 2-619(a)(9), the section upon which defendant relies, acknowledges the plaintiff's cause of action but presents an affirmative matter that avoids the legal effect of the claim. 735 ILCS 5/2-619(a)(9) (West 2000). In the instant case, the "affirmative matter" asserted by defendant is the protection of accountants from third-party liability set out in section 30.1 the Act. 225 ILCS 450/30.1 (West 2000). It provides:

"No person, partnership or corporation licensed or authorized to practice under this Act or any of its employees, partners, members, officers or shareholders shall be liable to persons not in privity of contract with such person, partnership or corporation, for civil damages resulting from acts, omissions, decisions or other conduct in connection with professional services performed by such person, partnership or corporation, except for:

(1) such acts, omissions, decisions or conduct that constitute fraud or intentional misrepresentations, or

(2) such other acts, omissions, decisions or conduct, if such person, partnership or corporation was aware that a primary intent of the client was for the professional services to benefit or influence the particular person bringing the action; provided, however, for the purposes of this subparagraph (2), if such person, partnership or corporation (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, then such person, partnership or corporation or any of its employees, partners, members, officers or shareholders may be held liable only to such persons intended to so rely, in addition to those persons in privity of contract with such person, partnership or corporation." 225 ILCS 450/30.1 (West 2000).

Affirmative matters within the meaning of section 2-619(a)(9) of the Code encompass matters in the nature of a defense that negates the plaintiff's cause of action entirely or refutes crucial conclusions of law or conclusions of material fact that are unsupported by the complaint. O'Hare Truck Service, Inc. v. Illinois State Police, 284 Ill.App.3d 941, 945-46, 220 Ill.Dec. 587, 673 N.E.2d 731 (1996). Defendant reasons that the statute requires plaintiff to allege that defendant was aware of the client's intent to benefit or influence a third party at the time the work was prepared by defendant. According to defendant, plaintiff cannot allege that defendant was aware that its client intended that its work would influence plaintiff because UMC did not have a relationship with Builder's Bank at the time defendant prepared the reviewed financial statements. Defendant argues that the action was, therefore, properly dismissed because no set of circumstances exist whereby plaintiff could state a cause of action under the statute.

Appellate review of a dismissal pursuant to section 2-619 is de novo and, thus, a reviewing court need not defer to the circuit court's reasoning. Spillyards v. Abboud, 278 Ill.App.3d 663, 215 Ill.Dec. 218, 662 N.E.2d 1358 (1996). The relevant inquiry on appeal is "whether the existence of a genuine issue of material fact should have precluded the dismissal or, absent such an issue of fact, whether dismissal is proper as a matter of law." Kedzie & 103rd Currency Exchange, Inc. v. Hodge, 156 Ill.2d 112, 116-17, 189 Ill.Dec. 31, 619 N.E.2d 732 (1993). In making this determination, we will construe all pleadings and supporting documents in a light most favorable to the nonmoving party. Mayfield v. ACME Barrel Co., 258 Ill.App.3d 32, 34, 196 Ill.Dec. 145, 629 N.E.2d 690 (1994). Plaintiff made, inter alia, the following allegations in its first amended complaint:

"7. In connection with the loan and at plaintiff's request, defendant furnished plaintiff with reviewed financial statements for UMC for the years ending June 30, 1998 and June 30, 1997 (dated July 7, 1998) as well as projected consolidated financial statements for the year ending September 30, 1999 (dated

...