City Nat. Bank of Florida v. Checkers, Simon & Rosner

• Decision Date: 02 September 1994
• Docket Number: No. 93-3334,93-3334
• Citation: 32 F.3d 277
• Parties: CITY NATIONAL BANK OF FLORIDA, a National Banking Association, Plaintiff-Appellant, v. CHECKERS, SIMON & ROSNER, an Illinois Partnership, and Alan H. Gussis, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 277

32 F.3d 277

CITY NATIONAL BANK OF FLORIDA, a National Banking Association, Plaintiff-Appellant, v. CHECKERS, SIMON & ROSNER, an Illinois Partnership, and Alan H. Gussis, Defendants-Appellees.

No. 93-3334.

United States Court of Appeals, Seventh Circuit.

Argued April 6, 1994.

Decided Aug. 9, 1994.

Rehearing Denied Sept. 2, 1994.

William R. Quinlan, Michael I. Rothstein (argued), Stephen McKenna, Pope, Cahill & Devine, Chicago, IL, Robert P. Frankel, Lapidus & Frankel, Miami, FL, for City Nat. Bank of Florida.

Paul B. Uhlenhop, Charles J. Risch (argued), Lawrence A. Rosen, Lawrence, Kamin, Saunders & Uhlenhop, Chicago, IL, for Checkers, Simon & Rosner and Alan H. Gussis.

Kimball R. Anderson, Julie A. Bauer, Jennifer J. Demmon, Winston & Strawn, Chicago, IL, for Illinois CPA Soc., amicus curiae.

Before COFFEY, EASTERBROOK and MANION, Circuit Judges.

COFFEY, Circuit Judge.

City National Bank of Florida ("CNB" or "the bank") appeals the dismissal of its complaint for fraud and negligence against Checkers, Simon & Rosner, an Illinois-based accounting firm, and Alan Harvey Gussis individually, one of the firm's partners ("the defendants"). We agree with the district court that CNB's complaint against the defendants is barred by the Illinois statute of limitations, 735 ILCS Sec. 5/13-214.2(a). We affirm.

FACTS

CNB is a "national banking association" with its principal place of business in Miami, Florida. Checkers, Simon & Rosner is an Illinois partnership engaged primarily in the business of providing public accounting, business and financial advisory services, with its principal place of business in Chicago, Illinois. Alan Gussis is a certified public accountant, a resident of Illinois, and a partner at Checkers, Simon & Rosner.

CNB alleged that "[i]n the early Summer months of 1988" one Robert Sheridan contacted the bank "for the purpose of borrowing money" to finance his real estate ventures. CNB requested that Sheridan provide a "personal financial statement" and Sheridan hired Checkers, Simon & Rosner to prepare a "Statement of [Robert Sheridan's] Financial Condition [as of] June 30, 1987," ("the 1987 statement"). Included within the 1987 statement was an "Accountants' Compilation Report," which is a collection of financial information that is "the representation of management (owners) without [an] undertaking by the accountant to express any assurance on the statements." American Institute of Certified Public Accountants Standards, AR Sec. 100.04 (emphasis added). Defendant Alan Gussis was the Checkers, Simon & Rosner partner who oversaw the preparation of the compilation. In the 1987 statement, Checkers, Simon & Rosner reported that based on Sheridan's representations, Sheridan had assets totaling $37,603,700 and a net worth of $24,667,300 as of June 30, 1987. In preparing the report Checkers, Simon & Rosner relied solely on Sheridan's representations concerning his financial position. The accounting firm did not perform an audit of Sheridan. In an attempt to emphasize that Checkers, Simon & Rosner had not verified the information supplied by Sheridan, the firm included a disclaimer prominently-displayed within the 1987 statement, which stated:

"We have compiled the accompanying statement of financial condition of Robert Sheridan as of June 30, 1987, and the supplementary schedule presented herein, in accordance with standards established A compilation is limited to presenting in the form of a financial statement information that is the representation of the individual. We have not audited or reviewed the accompanying financial statements and supplementary schedule and, accordingly, do not express an opinion or any other form of assurance on them."

by the American Institute of Certified Public Accountants.

The 1987 statement was delivered to CNB on June 14, 1988.

In "late 1988" Sheridan subsequently submitted an updated personal financial statement to CNB, prepared by Checkers, Simon & Rosner. The 1988 compilation, which appears in the same format as the 1987 statement, reported that as of August 31, 1988, Sheridan had total assets of $41,150,200, a net worth of $29,458,800, and was contingently liable for some $41.3 million. The 1988 statement contained a disclaimer identical to that found in the 1987 statement.

In March of 1989, the bank "agreed to lend Robert Sheridan $500,000 based upon the representation set forth in the financial statements provided." CNB disbursed the first $200,000 of the unsecured loan to Sheridan on August 23, 1989, payable in full on March 10, 1990. Based on the bank's request for up-to-date information, Checkers, Simon & Rosner prepared a third personal financial statement ("the 1989 statement") on Sheridan's behalf in a format identical to the previous two (including disclaimer) and in turn Sheridan submitted it to CNB. The third statement reported that as of August 31, 1989, Sheridan had assets of $51,399,790, a net worth of $31,385,112, and contingent liabilities of some $55.2 million. On March 1, 1990, following the submission of the third statement, CNB disbursed the remaining $300,000 of the $500,000 loan to Sheridan with a due date of May 12, 1990.

"[S]hortly before" March 10, 1990, the day the $200,000 portion of the loan was due, Sheridan requested, and the bank granted, an extension of time for repayment of the loan. According to CNB, as the due date (May 12, 1990) approached for the repayment of the $300,000 portion of the loan, Sheridan, citing a cash-flow problem, again requested an extension, claiming that he would repay the entire amount on or before June 26, 1990. Between March 10, 1990, and May 12, 1990, CNB requested another updated personal financial statement, which Sheridan provided. This fourth (1990) statement, which Checkers, Simon & Rosner denies having "significant" involvement with, and which did not include a disclaimer, reported that as of March 28, 1990, Sheridan had assets totaling $57,232,883, a net worth of $32,338,719 and contingent liabilities of approximately $41.7 million. Based on Sheridan's request as well as the representations in this latest financial report, the bank extended the loan's due date from May 12, 1990, to June 26, 1990. However, sometime before the June 26, 1990 deadline, Sheridan, still unable to repay the loan, requested and received a third extension from CNB until July 26, 1990.

Sheridan failed to repay the $500,000 loan by July 26, 1990, and CNB declared him to be in default, and according to the bank, it "immediately requested additional financial information from Sheridan." After Sheridan provided the information, CNB through its investigation, "discovered that [Sheridan's] prior representations set forth in the various personal financial statements were false, inaccurate and misleading." On October 2, 1990, CNB filed suit against Sheridan in the Eleventh Judicial Circuit of Dade County, Florida, alleging "fraudulent misrepresentation" and that "the Financial Statements were false in that values assigned to the assets fraudulently exaggerated the value of Robert Sheridan's assets and failed to contain a truthful, accurate picture with respect to the liabilities affecting the assets." Following the filing of CNB's lawsuit against him, in the spring of 1991, Robert Sheridan filed for United States bankruptcy protection in the United States District Court, Northern District of Illinois, Eastern Division. CNB challenged the dischargeability of Sheridan's debt and filed an adversary proceeding in bankruptcy court, alleging that Sheridan had committed fraud. On March 26, 1992, CNB deposed Gussis, the Checkers, Simon and Rosner partner assigned to the Sheridan matter. According to CNB, it learned for the first time at this deposition that Checkers As a result of the Gussis deposition and the information gained therein, on September 29, 1992, the bank filed suit against the accounting firm of Checkers, Simon & Rosner in the Eleventh Judicial Circuit of Dade County, Florida, alleging fraudulent misrepresentation (Count One) and negligence (Count Two). CNB's complaint alleged that "[t]he defendants knew that the values assigned to the assets in the financial statement scheduled as investments in real estate partnerships, accounts receivables, cash and advances to real estate partnerships were false, misleading and grossly exaggerated," and that the firm "prepared the financial statement with the full knowledge and awareness that the financial statement would be circulated to various lenders and prospective lenders, including lenders from whom Sheridan was seeking loans on an unsecured basis." CNB also alleged that it "relied upon the accuracy and representations set forth in the financial statements prepared by the defendant, [Checkers, Simon & Rosner]" and that "[t]he actions of the defendant[ ] were the proximate cause of the loss sustained by the City National Bank of Florida." Finally, the bank claimed that it "sustained damages for a loss of principal, accrued interest and attorneys' fees and costs incurred in connection with various Dade County state court proceedings against Robert Sheridan as well as the overall bankruptcy proceedings including the prosecution of an adversary complaint against Robert Sheridan in the bankruptcy court in Chicago."

Simon & Rosner had maintained a close business relationship with Sheridan for a number of years including preparation of his tax returns and providing various accounting services. CNB also claims that while deposing Gussis, it learned that the accounting firm knew in advance that Sheridan's financial statements were to be sent to CNB for the purpose of obtaining a loan. Accordingly, CNB alleged that Checkers, Simon & Rosner was at least partly responsible for Sheridan's failure to repay the $500,000 loan because "at all relevant times, Checkers[, Simon & Rosner] knew of the false, misleading and grossly exaggerated nature of the representations...