Congregation of the Passion, Holy Cross Province v. Touche Ross & Co.

• Decision Date: 30 December 1991
• Docket Number: No. 1-89-0922,1-89-0922
• Citation: 166 Ill.Dec. 642,586 N.E.2d 600,224 Ill.App.3d 559
• Parties: , 166 Ill.Dec. 642 CONGREGATION OF THE PASSION, HOLY CROSS PROVINCE, an Illinois Not-For-Profit Corporation, Plaintiff-Appellee/Cross-Plaintiff-Appellant, v. TOUCHE ROSS & COMPANY, Co-partnership, Defendant-Appellant/Cross-Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 600

586 N.E.2d 600

224 Ill.App.3d 559, 166 Ill.Dec. 642

CONGREGATION OF THE PASSION, HOLY CROSS PROVINCE, an Illinois Not-For-Profit Corporation Plaintiff-Appellee/Cross-Plaintiff-Appellant, v. TOUCHE ROSS & COMPANY, Co-partnership Defendant-Appellant/Cross-Defendant-Appellee.

No. 1-89-0922.

Appellate Court of Illinois First District, First Division.

Dec. 30, 1991.

Francis J. Higgins, Daniel Barr, Michael A. Forti, and Todd M. Kossow, of counsel of Bell, Boyd & Lloyd, Chicago, for defendant-appellant/cross-defendant-appellee.

McBride, Baker & Coles, Thomas P. Ward, of counsel, David C. Gustman, Leland W. Hutchinson, Jr., Beverly L. Bailey, and Andra K. Heller, of counsel, of Freevorn & Peters, Chicago, for plaintiff-appellee/cross-plaintiff-appellant.

Presiding Justice MANNING delivered the opinion of the court:

Following trial, the jury returned a verdict of liability against defendant-appellant/cross-defendant-appellee, Touche Ross & Company (hereafter Touche Ross) in favor of plaintiff-appellee/cross-plaintiff-appellant, Congregation of the Passion, Holy Cross Province, (hereafter Congregation) on Count I, sounding in accounting malpractice/negligence and assessed monetary damages in the amount of $3,900,000. The jury also returned a verdict of liability against Touche Ross to Congregation on Count III, a breach of contract theory, and assessed damages in the amount of $1,500,000. The circuit court thereafter entered a judgment order: (1) that granted Touche Ross' post-trial motion for an order of remittitur reducing the total judgment from $3,900,000 to $3,819,352; (2) that in all other respects, denied Touch Ross' post-trial motion; (3) that except as expressly provided, denied all post-trial motions of Congregation; (4) that entered judgment on the verdict of the jury on Counts I and III finding Touche Ross liable to Congregation for accounting malpractice/negligence and for breach of contract, respectively; and (5) that vacated the court's motion for remittitur as to Count III in the amount of $1,500,000 since Congregation filed a statement refusing to consent to the proposed remittitur by the court.

On appeal, this court granted the parties' motions to cite additional authority and submit briefs in excess of the maximum page requirements; thus, the briefs are lengthy and the trial record is voluminous as well. Touche Ross has raised a multitude of issues on review. The alleged assignments of error are:

(1) Whether the circuit court erred in rejecting collateral estoppel arguments with respect to certain findings made by the Federal court in a prior action between the parties?

(2) Whether the circuit court erred in preventing Touche Ross' counsel from asking prospective jurors during voir dire about their religious affiliation and financial contributions to the Passionists or Catholic Church?

(3) Whether the circuit court erred: (a) in granting Congregation's motion in limine to exclude any reference to Congregation's other investment activities and (b) with respect to other rulings on several motions in limine ?

(4) Whether the circuit court erred when it denied Touche Ross' motions for summary judgment, directed verdict and judgment notwithstanding the verdict on Congregation's negligence claim by refusing to find, pursuant to the Moorman doctrine, that Congregation is precluded from recovering purely economic losses in a tort action?

(5) Whether the circuit court erred when it denied Touche Ross' motions for directed verdict and judgment notwithstanding the verdict on the negligence count where Congregation abandoned its negligent misrepresentation allegations therein during the jury instruction conference and thereafter amended its complaint to delete all such allegations from the negligence count?

(6) Whether the circuit court improperly denied Touche Ross' motions for directed verdict and judgment notwithstanding the verdict by rejecting its' argument that Congregation knowingly consented to Touche Ross' decision not to report Congregation's investments at their actual value?

(7) Whether the circuit court erred in refusing certain jury instructions proffered by Touche Ross, in particular, an instruction delineating the elements necessary to prove a claim based on negligent misrepresentation, which includes the element of reliance?

(8) Whether the circuit court committed error when it denied Touche Ross' motion for a new trial agreeing with the jury's finding that Congregation was 0% contributorily negligent?

(9) Whether the circuit court erred in denying Touche Ross' motion for a new trial when Congregation refused to consent to the court's remittitur of damages order?

CROSS-APPEAL

(10) Whether the circuit court erred in denying Congregation's claim for prejudgment interest?

(11) Whether the circuit court erred in directing a verdict against Congregation at the close of all of the evidence on its' claim for breach of fiduciary duty?

(12) Whether the jury's award of $1.5 million to Congregation on the breach of contract claim should be increased to $3,819,352, the amount stated and requested by Congregation as damages sustained?

BACKGROUND

The following facts are set forth from the record below. Touche Ross is an accounting firm that was organized as a co-partnership. Congregation is a Roman Catholic religious community consisting primarily of priests and brothers. It is organized as a not-for-profit corporation and serves as one of two provinces in the United States. Congregation maintains headquarters in Chicago, Illinois and operates monasteries, retreat houses and schools in roughly the western two-thirds of the United States. Religious work is funded by outside contributions and income from capital the governing body (hereinafter the Provincial Council) has invested over the years.

Congregation hired investment specialists and advisors to manage its funds and portfolios. Prior to 1972 a Chicago-based accounting firm prepared the annual financial statements which included reports on the portfolios. In 1973 Congregation engaged the Chicago office of Touche Ross to perform and prepare a review of Congregation's financial statement for the year ending June 30, 1973. Beginning in 1973 and continuing each year through June 30, 1980, Touche Ross and Congregation entered into an agreement known as the "engagement letter" which delineated the services Touche Ross was to provide to Congregation. The engagement letter included a provision that Touche Ross was to "prepare unaudited financial statements for your use (Congregation's use) for the year ended June 30, 19--." The letter also stated that "[w]e wish to emphasize that our engagement is not for the purpose of expressing an opinion on the financial statements and accordingly, the unaudited statements which we prepare will not satisfy any regulatory, contractual, or other requirements for an audit in accordance with generally accepted auditing standards. Furthermore, our engagement is not designed to disclose defalcations or other similar irregularities." The engagement letter provided Congregation with the responsibility "for the proper recording of transactions in the books of account * * * and for the substantial accuracy of the financial statements."

With respect to the provision regarding investments, which primarily is the subject of this appeal, the engagement letter provided, in part:

"Investments. Investment securities are to be physically inspected or confirmed by direct correspondence with independent custodians. Investment market values will be tested by reference to published market quotations. Interest due and dividends declared on investments held during the year will be agreed to reported receipts."

In July 1975 Congregation and Cranford Newell, an investment advisor, entered into an agreement authorizing Newell to manage certain funds for Congregation and granting Newell "full discretion" to manage the "Retirement Fund," which had an initial value of approximately $1,000,000. In early 1976 Congregation also established a "Permanent Fund" and committed an additional $1,000,000 to Newell's management.

In 1976 Touche Ross began reviewing the new portfolio managed by Newell. The engagement partner, Phillip R. Melchert (hereinafter Melchert), who was responsible for Congregation's reports from 1974 onward, designated a manager and one or two junior employees who actually went through the accounts at Congregation's offices and prepared the workpaper notes and drafts. In 1976 one of the juniors assigned to Congregation's investment review was William Cornfield (hereinafter Cornfield) and the manager was Duane Oesterreich (hereinafter Oesterreich). In the year-end reviews, Touche Ross accountants worked closely with Brother James Kent (hereinafter Bro. Kent), Congregation's internal accountant and bookkeeper, and after Bro. Kent left the province, they worked with Sister Jeanette Flaherty (hereinafter Sr. Flaherty), Congregation's assistant treasurer/bookkeeper.

The Newell investment activity primarily involved "arbitrage" ¹ transactions in "Governments," ² but also included some securities or bonds issued by corporations or municipalities. Newell's trading strategy involved highly leveraged arbitrage positions in Governments and he established and maintained accounts with 10 or more government securities dealers, including Kidder Peabody & Co., The First Boston Corp., Bankers Trust Co., and Briggs, Schaedle & Co. Every dealer through whom Newell made a transaction; i.e., opened, closed or repriced a position, sent confirmations relating to the transaction to Newell and directly to Congregation. It is not disputed that Newell also regularly sent a confirmation to Congregation which identified the securities purchased or sold, coupon value, face value, market value, accrued interest on the bond or note, if any, and other information.

According to the parties' briefs on appeal, problems...