Lutkauskas v. Ricker

• Decision Date: 23 January 2015
• Docket Number: No. 117090.,117090.
• Citation: 28 N.E.3d 727
• Parties: Anthony LUTKAUSKAS et al., Appellants, v. Timothy RICKER et al., Appellees.
• Court: Illinois Supreme Court

28 N.E.3d 727

Anthony LUTKAUSKAS et al., Appellants
v.
Timothy RICKER et al., Appellees.

No. 117090.

Supreme Court of Illinois.

Jan. 23, 2015.
Rehearing Denied March 23, 2015.

28 N.E.3d 729

Clinton A. Krislov and John P. Orellana, of Krislov & Associates, Ltd., of Chicago, for appellants.

Williams Montgomery & John Ltd., of Chicago (Thomas F. Falkenberg, Alyssa M. Reiter and Kirstin B. Ives, of counsel), for appellee Knutte & Associates, P.C.

Justino D. Petrarca, Kevin B. Gordon and James A. Petrungaro, of Scariano, Himes and Petrarca, Chtrd., of Chicago, for appellees Robert Beckwith et al.

Clausen Miller P.C., of Chicago (Melinda S. Kollross, Edward M. Kay, Paige M. Neel and Mark J. Sobczak, of counsel), for appellee Timothy Ricker.

Wilson Elser Moskowitz Edelman & Dicker LLP, of Chicago (Melissa A. Murphy–Petros and Kimberly E. Blair, of counsel), for appellee Certain Underwriters at Lloyd's London.

OPINION

Justice FREEMAN delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs, resident taxpayers of Lemont–Bromberek Combined School District 113A (School District), filed three taxpayer derivative actions on behalf of the School District. Plaintiffs sought relief against certain officers and employees of the School District and current and former members of its board of education (collectively,

28 N.E.3d 730

the District defendants), alleging that they had improperly transferred money from the School District's Working Cash Fund, in violation of article 20 of the School Code (105 ILCS 5/20–1 et seq. (West 2010)). Plaintiffs also sought recovery against the surety that issued the bond for the School District's treasurer and against the accounting firm that performed audits of the School District's finances during the relevant time period. The circuit court of Cook County dismissed all of plaintiffs' claims, and the appellate court affirmed. 2013 IL App (1st) 121112, 376 Ill.Dec. 7, 998 N.E.2d 549. We allowed plaintiffs' petition for leave to appeal (Ill.S.Ct. R. 315(a) (eff. July 1, 2013)). For the reasons that follow, we affirm the judgment of the appellate court.

¶ 2 BACKGROUND

¶ 3 Article 20 of the School Code permits a school district to create and maintain a Working Cash Fund to meet expenditures for the school district's purposes. 105 ILCS 5/20–1 (West 2010). A Working Cash Fund is funded either through tax levies or by issuance of bonds and is designed to ensure that a school district has enough funds on hand to meet its financial obligations pending the deposit of tax receipts. 105 ILCS 5/20–2, 20–3, 20–4 (West 2010). Section 20–4 specifically authorizes the school board to use money in the Working Cash Fund “for any and all school purposes.” 105 ILCS 5/20–4 (West 2010). Section 20–5 authorizes the transfer of sums of money from the Working Cash Fund to other funds in accordance with a specified procedure that requires passage of a school board resolution directing the school treasurer to transfer “such sums as may be required for the purposes * * * authorized.” 105 ILCS 5/20–5 (West 2010). A Working Cash Fund may be either abated or abolished. 105 ILCS 5/20–8, 20–10 (West 2010). Upon abolishment, the balance remaining in the Working Cash Fund is transferred to the Educational Fund and any monies owed the Working Cash Fund are to be paid into the Educational Fund. 105 ILCS 5/20–8 (West 2010).

¶ 4 Section 20–6 prescribes both criminal penalties and civil remedies for willful violations of the provisions of article 20. Section 20–6 provides:

“Any member of the school board of any school district to which this Article is applicable, or any other person holding any office, trust, or employment under such school district who wilfully violates any of the provisions of this Article shall be guilty of a business offense and fined not exceeding $10,000, and shall forfeit his right to his office, trust or employment and shall be removed therefrom. Any such member or other person shall be liable for any sum that may be unlawfully diverted from the working cash fund or otherwise used, to be recovered by such school district or by any taxpayer in the name and for the benefit of such school district in an appropriate civil action; provided that the taxpayer shall file a bond for all costs and be liable for all costs taxed against the school district in such suit, and judgment shall be rendered accordingly. Nothing herein shall bar any other remedies.” 105 ILCS 5/20–6 (West 2010).

¶ 5 In this case, the School District maintained a Working Cash Fund pursuant to the terms of article 20. On December 2, 2009, the school board passed a resolution to partially abate the fund, and on April 28, 2010, the school board passed a resolution abolishing the Working Cash Fund.

¶ 6 On December 17, 2010, plaintiffs Laura Reigle, Duane Bradley, and Louis Emery filed a three-count complaint seeking

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monetary damages and other relief based on improper transfers from the School District's Working Cash Fund. On that same date, plaintiff Janet Hughes, who was represented by the same counsel, filed a separate complaint that was virtually identical to that of Reigle, Bradley, and Emery. Both complaints were brought “for and on behalf of” the School District and named as defendants several current and former members of the School District's board of education, as well as Timothy Ricker, the School District's superintendent, and Robert Beckwith, the School District's treasurer. In addition, both complaints sought recovery from Knutte & Associates, P.C. (Knutte), the accounting firm that performed financial audits for the School District from 2007 through 2010, and from Lloyd's Illinois Inc. (Lloyd's), the surety company that issued the bond securing the performance of Beckwith. The two actions filed by Reigle, Bradley, Emery, and Hughes (the original plaintiffs) were consolidated.

¶ 7 Count I of the consolidated action asserted statutory violations against the District defendants and alleged that they had willfully violated sections 20–4 and 20–5 of the School Code by improperly transferring and spending money from the School District's Working Cash Fund. In particular, plaintiffs claimed that the District defendants' improper actions consisted of the following: failure to pass any resolutions authorizing the transfers, as required by section 20–5 ; failure to reimburse the Working Cash Fund upon receipt of tax revenues; expenditure of money in excess of “legal appropriation” and attempt to conceal such expenditures; and failure to document the improper transfers and expenditures.

¶ 8 As relief, count I requested (1) a declaration that the District defendants had forfeited their offices and employment with the School District, (2) a monetary judgment in an amount sufficient to “make the [School District] whole” and reimburse the funds that were “unlawfully diverted” from the Working Cash Fund, and (3) fines assessed pursuant to section 20–6.

¶ 9 Count II sought recovery from Lloyd's and alleged that, as surety for Beckwith, it was liable for damages suffered by the School District as a result of Beckwith's failure to faithfully discharge the duties of his office. Count II subsequently was voluntarily dismissed, with leave to replead against another Lloyd's entity.

¶ 10 Count III was directed against Knutte and asserted that the accounting firm was liable under section 20–6 of the School Code for accountant negligence. This claim was predicated on allegations that, despite knowledge of the District defendants' alleged statutory violations, Knutte issued “clean” audit reports of the School District's financial statements for the years 2007 through 2009, which concealed the District defendants' illegal conduct and resulted in substantial losses to the School District.

¶ 11 The original complaints contained no allegations that any of the School District's money had been stolen, converted, or otherwise spent on anything but legitimate School District expenses.

¶ 12 The District defendants filed a combined motion to dismiss pursuant to section 2–619.1 of the Code of Civil Procedure. 735 ILCS 5/2–619.1 (West 2010). With regard to count I, the District defendants sought dismissal under section 2–615 of the Code of Civil Procedure (735 ILCS 5/2–615 (West 2010) ) for failure to plead sufficient facts to support a violation of the School Code and based on the fact that they had been sued in their individual capacities. The District defendants also sought dismissal of count I under

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section 2–619 (735 ILCS 5/2–619 (West 2010) ) on the grounds that (1) plaintiffs lacked standing to sue under section 20–6 of the School Code, which was criminal in nature and did not authorize a private right of action absent a predicate criminal conviction, and (2) legislative immunity protected the District defendants from liability. In addition, the motion contended that certain of the named defendants should be dismissed because none of the factual allegations in the complaints were directed at those individuals.

¶ 13 Knutte filed a combined motion to dismiss count III, seeking dismissal under section 2–615...