(I1ll.App.Ct. 2004) changed the law in Illinois with respect to the
duty owed by accountants to third parties (non-clients). I do not
read Freeman so broadly. To the contrary, I read it as being
totally consistent with prior Illinois decisions on accountant’s
professional liability. Illinois law starts with the proposition
that accountants may not be held liable to persons with whom they
are not in privity of contract. The Illinois statute governing
accountants’ liability provides for an exception to this general
rule where the accountant was aware that the client’s primary
intent was to benefit or influence the plaintiff in a malpractice
or negligence action. 225 Ill. Comp. Stat. 450/30.1(2). In Freeman,
the individual plaintiffs were investors in and limited partners of
Lipper Funds. The accountants were engaged by Lipper for the
specific purpose of determining each limited partner’s capital
account on an annual basis, as well as to audit the annual
statements of the Funds. The partners’ individual statements of
account and determination of gain or loss (IRS Forms K-1) were sent
by the accountants directly to the individual investors and relied
upon by them in preparing their federal income tax returns.
Notwithstanding these facts, the trial court dismissed the
complaint. The Illinois Appellate Court reversed and held that the
complaint stated a cause of action for accountants’ liability.
The Freeman decision is consistent with earlier and subsequent

Illinois cases. See e.g., Builders Bank v. Barry Finkel & Assoc.,


against PwC. More importantly, the consent decree adds nothing
substantive to Tricontinental’s claim against PwC for negligent
misrepresentation and common law fraud. There is a substantial
question as to whether the consent decree would even be admissible
at trial, even if it were relevant. See Latigo Ventures v.
Laventhol & Horwath, No. 85 C 9584, 1987 WL 26237, *4 (N.D.I1ll.
Nov. 27, 1987). Putting aside, however, problems as to
admissibility,? the consent decree does nothing to solve
Tricontinental’s ongoing failure to plead a viable claim against
PwC. The central issue here is whether PwC had a duty to
Tricontinental during the 1998 negotiations that led to the sale of
the Anicom securities to speak up concerning accounting
irregularities PwC may have discovered during its audit of Anicom’s
1997 financial statements. I have repeatedly held that it did not.
The consent decree does not address any problems encountered in
PwC’s audit of the 1997 Anicom statement. It does not even mention
that statement, but is concerned only with PwC’s involvement in
financial statements that were generated after the sale.

Second, Tricontinental contends that the June 25, 2004

decision in Freeman, Freeman and Salzman v. Lipper, 812 N.E.2d 562

2 Seidelman entered into the consent decree without admitting
or denying any of the SEC’s findings; PwC was not a party to the
enforcement proceeding; Endnote 2 to the consent decree expressly
states: “The findings herein are made pursuant to Seidelman’s Offer
of Settlement and are not binding on any other person or entity in
this or any other proceeding.”


273 %I1l.Dec. 888 (I11.App.Ct. 2003); Kopka v. Kamensky &
Rubinstein, 821 N.B.2d 719 (I11.App.Cct. 2004). Despite having
filed three versions of its complaint, Tricontinental has never
pleaded that at the time PwC was retained to audit Anicom’s 1997
financial statement, PwC was aware that Anicom’s primary intent was
to benefit or influence Tricontinental, and I doubt that any
factual basis exists for making such an allegation. In any event,
the argument that Freeman, supra, requires giving Tricontinental
yet another opportunity to replead not only comes too late, it is
wrong.

For the foregoing reasons, I deny Tricontinental’s motion to

vacate dismissal of and replead claims against PwC.

ENTER ORDER:

22 . Z 4 ,

Elaine E. Bucklo
United States District Judge

Dated: April al , 2005


IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

TRICONTINENTAL INDUSTRIES LTD.,
a British Columbia corporation,
and TRICONTINENTAL DISTRIBUTION
LIMITED, formerly known as
TEXCAN CABLES LIMITED, a
Canadian corporation,

v. No. 01 C 5526
ALAN B. ANIXTER, SCOTT C.

ANIXTER, CARL E. PUTNAM, DONALD

)

)

)

)

)

)

)

Plaintiffs, )
)

)

)

)

)

WELCHKO, individuals, )
)

)

Defendants.

MEMORANDUM OPINION AND ORDER

This is an action for alleged fraud in the sale of securities.
Tricontinental Industries LTD and Tricontinental Distribution
Limited (collectively, “Tricontinental”) move to vacate the
dismissal of, and replead, their claims against Pricewaterhouse-
Coopers, LLP (PwC). In five prior opinions I have dealt with
Tricontinental’s efforts to state a viable claim against PwC, and
none of the arguments advanced on this motion persuades me to
depart from my previously expressed views. See Tricontinental
Industries v. Anixter, 184 F.Supp.2d (N.D. Ill. 2002); Tricontinen-
tal Industries v. Anixter, 256 F.Supp.2d 806 (N.D. Ill. 2002);
Tricontinental Industries v. Anixter, 299 F.Supp.2d 863 (N.D. Ill.

2004); Tricontinental Industries v. Anixter, 313 F.Supp.2d 785


(N.D. Ill. 2004); and Tricontinental Industries v. Anixter, 313
F.Supp.2d 788 (N.D. Ill. 2004).

On September 21, 1998, Tricontinental sold certain assets to
the Chicago-based Anicom, Inc. for cash and Anicom securities. The
Anicom securities were valued at the closing at more than $33.5
million dollars. Since then, Anicom has gone into bankruptcy.
Tricontinental’s claims against PwC were based upon PwC’s role as
Anicom’s certified public accountants and sought to impose
liability on PwC under Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 of the Securities Exchange Commission (SEC)
promulgated thereunder, as well as under the laws of the state of
Illinois.

Tricontinental filed its original complaint on July 17, 2001.
On January 18, 2002, after extensive briefing, I granted PwC’s
motion to dismiss all claims pleaded against it. Tricontinental
filed a motion for reconsideration of my January 18, 2002 order,
which was denied on April 15, 2003. Meanwhile, Tricontinental
filed a motion for leave to file an amended complaint, which I
granted. The amended complaint purported to state only three
claims against PwC, one for securities fraud and two counts
numbered IV and V under Illinois law: negligent misrepresentation
and common law fraud. On September 26, 2003, while the motion to
dismiss the amended complaint was pending and approximately one

month prior to the scheduled cut-off of fact discovery,


Tricontinental sought leave to file a second amended complaint and
assured me that the two common law counts against PwC were
completely unchanged in the proposed second amended complaint.
(Transcript of 9/26/03 hearing at 8). I allowed the filing of the
second amended complaint.

Tricontinental insists that it is entitled to amend counts IV
and V originally pleaded in its amended complaint. These are
counts which, on September 26, 2003, Tricontinental’s then counsel
represented to the court were unchanged in the second amended
complaint. As it turned out, the counts had in fact been changed.

Tricontinental relies on two arguments in support of its
motion to amend. First, it argues that a consent decree entered in
an SEC administrative proceeding against Gary Seidelman,' a PwC
partner, found that “Seidelman was directly involved in, and
responsible for, the preparation of the false, unqualified audit
opinions that concealed Anicom’s true financial condition.” The
existence of the consent decree was hardly new on January 13, 2005,
when Tricontinental first brought it to the attention of the court
in its initial memorandum in support of the present motion. The
decree was the subject of an SEC release in August, 2004, almost

seven months after I entered the order dismissing the complaint as

21 In the matter of Gary L. Seidelman, Exchange Act Release
No. 34-50179, Accounting and Auditing, S.E.C. Docket 1634, 2004 WL
2211347 (August 11, 2004).