Maniscalco v. Porte Brown, LLC

2018 IL App (1st) 180716

127 N.E.3d 786

431 Ill.Dec. 253

Leonard J. MANISCALCO and Sackett Systems, Inc., Plaintiffs-Appellants,

v.PORTE BROWN, LLC and Thomas Porte, Defendants-Appellees.

No. 1-18-0716

Appellate Court of Illinois, First District, SIXTH DIVISION.

November 30, 2018

The Gooch Firm, of Wauconda (Thomas W. Gooch III and Sabina D. Walczyk, of counsel), for appellants.

Pretzel & Stouffer, Chtrd., of Chicago (Brendan J. Nelligan and Matthew J. Egan, of counsel), for appellees.

PRESIDING JUSTICE DELORT delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs Leonard J. Maniscalco and Sackett Systems, Inc. (Sackett), filed a complaint against defendants Porte Brown, LLC (Porte Brown), and Thomas Porte (Porte), alleging accounting malpractice. Defendants moved to dismiss the complaint pursuant to section 2-619 of the Code of Civil Procedure (Code) ( 735 ILCS 5/2-619 (West 2016) ), arguing that plaintiffs' claim was barred by both the statute of limitations and the statute of repose. The circuit court granted defendants' motion, and denied plaintiffs' subsequent combined motion to vacate and for leave to file an amended complaint. Plaintiffs now appeal the court's orders dismissing their complaint and denying their combined motion. We affirm.

¶ 2 BACKGROUND

¶ 3 On August 21, 2017, plaintiffs filed their one-count complaint against defendants, alleging accounting malpractice. The complaint alleged that, in 1972, Maniscalco created Delta Equipment Company (Delta). About 10 years later, Maniscalco founded Sackett and was its chief executive officer. In April 1994, Maniscalco executed a retainer agreement with Porte Brown, a firm of certified public accountants. The agreement provided that Porte Brown would provide "all accounting services" to Sackett and eventually Delta and Maniscalco individually, as well. Thomas Porte, a partner at Porte Brown, was "principally responsible for all accounting services rendered" to plaintiffs.

¶ 4 Attached to the complaint was a retainer agreement executed in December 2005, which indicated that Porte Brown agreed to "comply with the standards for accounting services issued by the American Institute of Certified Public Accountants." Plaintiffs alleged that Porte Brown breached that agreement by furnishing advice that violated various provisions of the Internal Revenue Code, resulting in a judgment against Maniscalco.

¶ 5 In particular, plaintiffs alleged that, at "some point during 2009," it was discovered—"with the assistance of Porte Brown"—that Delta was not profitable and was losing substantial amounts of money. Delta was unable to pay rent to Maniscalco for the space it was occupying and could not repay its loans from Sackett or Maniscalco. Plaintiffs alleged that "Porte" should have known that the undercapitalization of Delta, a closely held company, increased the risk that the owners could lose corporate protection for their actions.

¶ 6 Plaintiffs further alleged that Porte Brown also failed to warn plaintiffs of the risks associated with using "clever accounting techniques to provide financial advantages to" plaintiffs but to the detriment of Delta's creditors. Plaintiffs alleged that Porte Brown assisted plaintiffs in spinning off another corporation known as Delta Power Systems as a separate company with Maniscalco as the sole shareholder. In addition, between 2007 and 2009, Porte Brown devised a "scheme" in which $100,000 would be transferred back and forth between Sackett and Delta "to create a fictitious loss." Plaintiffs alleged that the scheme was developed to reduce Delta's debt to Sackett and provide tax losses to Sackett, in violation of various Internal Revenue Code provisions. Plaintiffs noted that Steiner Electric sued Delta in 2009 and, due in part to Porte Brown's advice, Steiner Electric obtained a default judgment against Delta, which at that time was out of business and had no assets. Plaintiffs further claimed that allowing a default judgment against Delta, instead of having Delta file for bankruptcy protection, was financially advantageous to plaintiffs and was supported by outside legal counsel and Porte Brown. According to plaintiffs, the default judgment allowed Steiner Electric to sue plaintiffs on October 26, 2010, in case No. 10 L 012239 (the Steiner Electric case), which resulted in Steiner piercing Delta's corporate veil and obtaining a judgment against Maniscalco and Sackett, jointly and severally. Plaintiffs claimed money damages in excess of $421,000.

¶ 7 On October 27, 2017, defendants moved to dismiss the complaint pursuant to section 2-619(a)(5) of the Code ( 735 ILCS 5/2-619(a)(5) (West 2016) ). Defendants argued that plaintiffs' action was barred by both the two-year statute of limitations and the five-year statute of repose. Defendants noted that the circuit court docket for the Steiner Electric case indicated that attorney Terrence M. Jordan appeared on behalf of Maniscalco and Sackett in November 2010 and filed a motion for summary judgment that was denied in March 2013. Defendants attached a letter dated April 11, 2013, to their motion. The letter was from Jordan to Maniscalco and Sackett, and it stated that the two primary issues that caused the court to deny the motion for summary judgment were the management fee "designed by Porte Brown" and the joint account used to fund the pension and health plans "established at the direction of Porte Brown." Jordan opined in his letter that, absent those two facts, the circuit court would have granted his summary judgment motion and Steiner Electric likely could not have "filed the piercing of the corporate veil case in the first place." Jordan's letter then stated, "There may be a malpractice claim against Porte Brown for the advice concerning both the management fee and the setting up of the joint account."

¶ 8 Defendants also attached to their motion Porte's affidavit confirming that Porte Brown was a firm of certified public accountants and registered pursuant to the Illinois Public Accounting Act ( 225 ILCS 450/0.01 et seq. (West 2016) ). Porte stated that he was an employee and partner of Porte Brown until his retirement in 2011 (and until 2012, a registered CPA), after which he performed "no accounting, professional services, or any other work" for plaintiffs, Delta, or any other entity. Porte added that, sometime in 2013, Maniscalco informed him that he and Sackett lost the Steiner Electric case. In addition, Porter recounted that Maniscalco showed Porter the letter from Jordan advising Maniscalco to sue Porter. According to Porter, Maniscalco said he did not wish to sue a friend and asked Porter for financial help to pay the judgment.

¶ 9 Plaintiffs responded to defendants' motion to dismiss, asserting that the statute of limitations did not bar their claim because of Porte Brown's "continuous reassurances and representation" until the end of 2016. Plaintiffs further argued that their claim was timely under the statute of repose because their allegations, which had to be taken as true, established that they "did not realize" that there was a viable malpractice claim until late 2016. Plaintiffs included in their response the affidavit of Maniscalco, in which he stated that (1) he spoke to Porte around August 2015 regarding the judgment from the Steiner Electric case against him and Sackett, and (2) defendants continued to assure him that his case was handled properly and provided "accounting services until the end of 2016" to his company. Maniscalco's affidavit neither denied receiving the letter from Jordan, nor disputed the statements in Porte's affidavit.

¶ 10 On January 5, 2018, following the filing of defendants' reply in support of their motion to dismiss, the circuit court granted defendants' motion "for reasons stated in court," finding that the complaint was barred by both the statute of limitations and the statute of repose. The court then dismissed the complaint with prejudice.

¶ 11 On March 2, 2018, the court issued an order denying plaintiffs' "motion to vacate portion of order dismissing cause with prejudice and to grant plaintiff leave to file an amended complaint."¹ The court's order, which stated that it was "fully advised in the premises," found that plaintiffs' proposed amendments would not cure the defects in the original pleading that showed that the claim was time-barred. The record does not include a report of proceedings for this day. This appeal followed.

¶ 12 ANALYSIS

¶ 13 The Statutes of Limitation and Repose

¶ 14 Plaintiffs first contend that the circuit court erred in granting defendants' motion to dismiss their complaint. Plaintiffs argue that their complaint was not time-barred under either the statute of limitations or the statute of repose.

¶ 15 Defendants' motion to dismiss was brought under section 2-619(a)(5) of the Code, which permits dismissal if the suit was not "commenced within the time limited by law." 735 ILCS 5/2-619(a)(5) (West 2016). When faced with a motion to dismiss pursuant to section 2-619, a court must accept all well-pleaded facts in the complaint as true and draw all reasonable inferences from those facts in favor of the nonmoving party. Snyder v. Heidelberger , 2011 IL 111052, ¶ 8, 352 Ill.Dec. 176, 953 N.E.2d 415. As a result, a motion to dismiss under section 2-619 should not be granted unless it is clearly apparent that no set of facts can be proved that would entitle the plaintiff to recovery. Id. We review de novo orders dismissing claims under section 2-619. Id.

¶ 16 Plaintiffs' complaint alleged a single count of accounting malpractice. Section 13-214.2(a) of the Code provides in relevant part that an action alleging accounting malpractice "shall be commenced within 2 years from the time the person bringing an action knew or should reasonably have known of such act or omission." 735 ILCS 5/13-214.2(a) (West 2016). The parties agree that section 13-214.2(a) incorporates the "discovery rule, ‘which delays commencement of ...