Court Opinion

ID: 4680748
Source: CourtListenerOpinion
Date Created: 2021-04-23 22:03:43.761964+00
Date Added: 2024-06-11T08:03:57.180926
License: Public Domain

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                                       Appellate Court                      Date: 2021.04.23
                                                                            13:25:15 -05'00'

        Asian Human Services Family Health Center, Inc. v. Asian Human Services, Inc.,
                                2020 IL App (1st) 191049

Appellate Court           ASIAN HUMAN SERVICES FAMILY HEALTH CENTER, INC.,
Caption                   Plaintiff and Counterdefendant, v. ASIAN HUMAN SERVICES,
                          INC., and BRIDGEVIEW BANK GROUP, Defendants (Asian
                          Human Services, Inc., Counterplaintiff and Third-Party Plaintiff-
                          Appellant; James Wong, Third-Party Defendant-Appellee).

District & No.            First District, Fifth Division
                          No. 1-19-1049

Filed                     February 14, 2020

Decision Under            Appeal from the Circuit Court of Cook County, No. 18-CH-08866; the
Review                    Hon. Anna M. Loftus, Judge, presiding.

Judgment                  Affirmed.

Counsel on                Martin J. O’Hara and Shawn M. Staples, of Much Shelist, P.C., of
Appeal                    Chicago, for appellant.

                          Thomas F. Falkenberg, of Falkenberg Ives LLP, of Chicago, for
                          appellee.
     Panel                       JUSTICE HALL delivered the judgment of the court, with opinion.
                                 Presiding Justice Hoffman and Justice Rochford concurred in the
                                 judgment and opinion.

                                                  OPINION

¶1        Third-party plaintiff-appellant, Asian Human Services, Inc. (appellant, AHS), filed the
      instant appeal arising from a trial court order granting the third-party defendant-appellee,
      James Wong’s (appellee), section 2-619 (735 ILCS 5/2-619 (West 2018)) motion to dismiss
      the appellant’s third-party complaint for breach of fiduciary duty. For the foregoing reasons,
      we affirm.

¶2                                          BACKGROUND
¶3        The underlying complaint, filed by Asian Human Services Family Health Center, Inc.
      (AHSFHC), on July 16, 2018, involved a declaratory judgment action, which alleged that
      between July 15, 2012, and April 30, 2018, AHSFHC and appellant entered into a contract for
      appellant to provide certain services to AHSFHC, including health promotion and
      administrative support, and engaged appellant’s finance director as the part-time director for
      AHSFHC.
¶4        On September 20, 2018, appellant filed a counterclaim against AHSFHC 1 and a third-
      party complaint against appellee, its independent auditor, alleging breach of fiduciary duty.
      Appellant’s third-party complaint alleged in relevant part that appellee acted as appellant’s
      independent auditor since 2003, appellant placed its trust in appellee and relied heavily on his
      judgment as appellant’s “long-time advisor and auditor,” appellee “served an integral role in
      AHS’s hiring process for four separate Chief Financial Officers,” appellee worked extensively
      with appellant throughout the audit process, and appellee gained superiority and influence over
      appellant. Appellant alleged that appellee owed it fiduciary duties as a result of “special
      circumstances” and that appellee breached these duties by, among other things:
                  “a. AHS’s 2017 financials, which were signed off by Mr. Wong in his capacity and
              AHS’s independent auditor, served as a basis for Plaintiff’s improper and ineffective
              attempts to terminate the Agreement for cause; and
                  b. On June 5, 2018, Mr. Wong, acting in his capacity as Plaintiff’s Chief Financial
              Officer, told representatives from HRSA that he had been working with Plaintiff ‘for
              about a year’ in a transition of Plaintiff away from AHS. However, at no time did Mr.
              Wong disclose to AHS that he was working with Plaintiff to transition away from AHS,
              to even disclose that Plaintiff was working in transition away from AHS at all.”
¶5        On November 1, 2018, appellee filed a section 2-619 (id.) motion to dismiss appellant’s
      third-party complaint arguing that (1) independent auditors do not stand in a fiduciary
      relationship with their clients and (2) there were no special circumstances that created a
      fiduciary relationship. Therefore, as a matter of law, appellant’s third-party complaint should
      be dismissed. After briefing and oral argument on the motion, on May 8, 2019, the trial court

         1
             Appellant’s counterclaim against AHSFHC is not a part of this appeal.

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       granted appellee’s motion to dismiss, with prejudice, and included Illinois Supreme Court Rule
       304(a) (eff. Mar. 8, 2016) language. Appellant filed the instant timely appeal.

¶6                                                ANALYSIS
¶7         Appellant raises one issue on appeal: whether the trial court erred by granting appellee’s
       section 2-619 motion to dismiss its third-party complaint alleging a breach of fiduciary duty.
¶8         A section 2-619 motion to dismiss provides for the involuntary dismissal of a cause of
       action based on certain defects or defenses. 735 ILCS 5/2-619 (West 2018); Richter v. Prairie
       Farms Dairy, Inc., 2016 IL 119518, ¶ 18. In ruling on the motion, the circuit court must
       interpret all pleadings and supporting documents in the light most favorable to the nonmoving
       party. Richter, 2016 IL 119518, ¶ 18. A section 2-619 motion admits the legal sufficiency of
       the complaint but asserts affirmative matter or other matter that avoids or defeats the claim
       (Smith v. The Vanguard Group, Inc., 2019 IL 123264, ¶ 9) and presents a question of law,
       which we review de novo (id.; Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 411
       (2002)).
¶9         On appeal, appellant argues that it sufficiently alleged a breach of fiduciary duty by the
       appellee in its third-party complaint. Specifically, appellant argues that appellee owed it a
       fiduciary duty as a result of special circumstances, that he breached this duty, and that the
       breach resulted in damages.
¶ 10       To state a claim for breach of fiduciary duty, it must be alleged and ultimately proved
       (1) that a fiduciary duty exists, (2) that the fiduciary duty was breached, and (3) that such
       breach proximately caused the injury of which the party complains. Lawlor v. North American
       Corp. of Illinois, 2012 IL 112530, ¶ 69 (citing Neade v. Portes, 193 Ill. 2d 433, 444 (2000)).
¶ 11       On appeal, appellant notes that Illinois law is devoid of caselaw addressing the issue here,
       whether an independent auditor owes a fiduciary duty to its client. However, it argues that,
       contrary to the appellee’s and the trial court’s position, Resolution Trust Corp. v. KPMG Peat
       Marwick, 844 F. Supp. 431 (N.D. Ill. 1994), should not be relied upon as persuasive authority.
       It urges that we should look to “other courts” instead who have held that auditors do owe a
       fiduciary duty to their clients.
¶ 12       Initially, appellee asserts that this issue has not been preserved for appellate review and is,
       therefore, waived because appellant did not allege or argue in the trial court that auditors owed
       a fiduciary duty to their clients and conceded that, generally, they did not. We will address the
       waiver argument first.
¶ 13       “Waiver arises from an affirmative act, is consensual, and consists of an intentional
       relinquishment of a known right.” Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill.
       2d 307, 326 (2004). Waiver may be either expressed or implied and arises from the acts, words,
       conduct, or knowledge of a party. Id. (citing Crum & Forster Managers Corp. v. Resolution
       Trust Corp., 156 Ill. 2d 384, 396 (1993)).
¶ 14       In the trial court, appellant made it clear in its third-party complaint, in its response to
       appellee’s motion to dismiss, and during oral argument on the motion to dismiss that it was not
       asserting that there was a fiduciary relationship between an independent auditor and its client
       but instead that a fiduciary relationship was formed due to special circumstances. In its third-
       party complaint, appellant alleged that “Mr. Wong owes fiduciary duties to AHS as a result of
       special circumstances.” Also, in its response to appellee’s motion to dismiss, appellant argued,

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       “[s]tated simply, AHS has alleged facts sufficient to state a cause of action against Wong for
       breach of fiduciary duty.” The law is clear that a fiduciary duty may arise by special
       circumstances where one party places trust and confidence in another. That is precisely what
       AHS has alleged here. Appellant argued that it was “not arguing that Mr. Wong became a
       fiduciary to AHS because he acted as an auditor.” Furthermore, during oral argument on
       appellee’s motion to dismiss, appellant stated, “[a]nd one thing I want to make clear is that
       we’re not arguing that Mr. Wong became a fiduciary to AHS because he acted as an auditor.
       Now, clearly that would be the antecedent relationship and it makes his actions that much more
       strange, but that’s not the basis.” Based upon the foregoing, we find that appellant conceded
       this issue in the trial court. See Wheeler v. Sunbelt Tool Co., 181 Ill. App. 3d 1088, 1098 (1989)
       (generally, where a party concedes an issue below, he cannot dispute the issue on appeal).
¶ 15       However, while an appellant who fails to raise an issue in the trial court waives that issue
       (DOD Technologies v. Mesirow Insurance Services, Inc., 381 Ill. App. 3d 1042, 1050 (2008)),
       “the rule of waiver is a limitation on the parties and not the courts” (Farmer v. Country Mutual
       Insurance Co., 365 Ill. App. 3d 1046, 1050 (2006)). We “can affirm the trial court on any basis
       that appears in the record.” Bowers v. State Farm Mutual Automobile Insurance Co., 403 Ill.
       App. 3d 173, 176 (2010).
¶ 16       Therefore, we will address the merits of appellant’s appeal. Although there is no Illinois
       caselaw addressing this issue, we agree with the trial court that Resolution Trust Corp., 844 F.
       Supp. 431, is persuasive and dispositive. The court in Resolution Trust Corp. held, as a matter
       of law, that generally an independent auditor does not owe a fiduciary duty to its client. Id. at
       436. In that case, the court reasoned that “[t]he duty of a traditional fiduciary is to act ‘in a
       representative capacity for another in dealing with the property of the other,’ whereas an
       auditor acts ‘independently, objectively and impartially, and with the skills which it
       represented to its clients that it possessed.’ ” Id. (quoting Franklin Supply Co. v. Tolman, 454
       F.2d 1059, 1065 (9th Cir. 1971)). Analyzing caselaw from other jurisdictions, the court in
       Resolution Trust Corp. concluded that “[t]he reasoning of the above cases persuades the court
       that this view of the relationship between independent auditor and client comports with Illinois
       law.” Id. Therefore, appellant’s third-party complaint was properly dismissed as a matter of
       law.
¶ 17       Nevertheless, appellant argues that, notwithstanding the court’s holding in Resolution Trust
       Corp. that an independent auditor generally does not owe a fiduciary duty to his client as a
       matter of law, it has sufficiently alleged special circumstances which create a fiduciary duty in
       this case.
¶ 18       A fiduciary duty by “special relationship” may arise where “one party places trust and
       confidence in another, thereby placing the latter party in a position of influence and superiority
       over the former.” (Internal quotation marks omitted.) Illinois State Bar Ass’n Mutual Insurance
       Co. v. Cavenagh, 2012 IL App (1st) 111810, ¶ 32. The court in Resolution Trust Corp. noted
       that, although the general rule in Illinois is that an independent auditor does not owe its client
       a fiduciary duty, “[p]erhaps in some instances the function of an independent auditor could
       overlap into areas in which it would hold a fiduciary duty to its client”; however, plaintiff in
       that case failed to “assert any special circumstances in its briefs.” Resolution Trust Corp., 844
       F. Supp. at 436.
¶ 19       In this case, even if we were to admit the legal sufficiency of the third-party complaint, the
       circumstances between the appellant and the appellee do not create a fiduciary duty.

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       Appellant’s allegation that it trusted appellee because appellee acted as an independent auditor
       does not equate to exercising superiority over an entity that was subservient. Although
       Tummelson v. White, 2015 IL App (4th) 150151, a case cited by appellee, does not involve an
       independent auditor, the court’s reasoning regarding what constitutes trust in this context is on
       point. “[T]rust and confidence are not enough to create a fiduciary relationship; superiority
       and influence must result from the trust and confidence.” (Emphases in original.) Id. ¶ 22.
¶ 20       Furthermore, appellant’s reliance upon Khan v. Deutsche Bank AG, 2012 IL 112219, in
       support of its position is misplaced, as that case is clearly distinguishable from the facts here.
       Khan involved allegations that accountants, among other things, advised plaintiffs that certain
       investment strategies could yield a substantial profit, legally minimized plaintiffs’ federal and
       state income tax liability, orchestrated the implementation of the investment strategies, and
       provided the purported required legal opinion letters verifying that the investment strategies
       were completely legal and that plaintiffs relied on their trusted legal, accounting, and tax
       advisors for comprehensive legal, accounting, tax, and investment advice. Id. ¶ 48. The Khan
       court held that “these allegations adequately pleaded that the Deutsche defendants had superior
       knowledge and influence over Khan and that he relied on them to give him sound investment
       and tax advice”; therefore, plaintiffs had sufficiently alleged facts to survive a motion to
       dismiss premised on section 2-615. Id. ¶ 60.
¶ 21       In this case, appellee did not provide appellant with investment and/or tax advice or
       maintain any superior influence over the appellant. Appellee provided independent, objective
       and impartial auditing, which did not create a fiduciary duty to appellant as a result of special
       circumstances. See Resolution Trust Corp., 844 F. Supp. at 436.
¶ 22       Appellant also alleged—without citing to any caselaw in support of its position—that
       appellee’s role in the hiring process for chief financial officer created a special relationship.
       Appellee argues that courts in other jurisdictions have rejected this argument and cites
       Friedman v. Anderson, 803 N.Y.S.2d 514 (App. Div. 2005), in which the court held that
       plaintiff’s claim that defendant, an accountant, negligently recommended a money manager to
       plaintiff did not create a fiduciary duty to plaintiff. That case is instructive. In this case,
       appellant’s allegations regarding appellee’s role in the hiring process does not show superiority
       or dominance over the hiring process. See Martin v. State Farm Mutual Automobile Insurance
       Co., 348 Ill. App. 3d 846, 852 (2004) (“plaintiffs’ conclusory allegations, even when viewed
       in the light most favorable to plaintiffs, do not give rise to an inference of the significant
       dominance and superiority necessary to establish a fiduciary relationship”).
¶ 23       In fact, appellant’s third-party complaint alleged that “the qualified CFO candidates”
       would be “presented to AHS’s Chief Executive Officer for further interviews and a final
       decision.” Ultimately, it was appellant’s decision to hire whomever it chose to. Therefore, we
       find no reason to reverse the trial court’s dismissal of appellant’s third-party complaint.
¶ 24       For the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.

¶ 25      Affirmed.

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