- Bank of America, N.A. v. James A. Knight, et al., Case No. 12-2698 (7th Cir. August 8, 2013)
- Affirmed dismissal of all claims for failure to allege plausibly that the accountants knew that Knight’s “primary intent” was to benefit the particular plaintiff Bank. Under federal and state precedent, Tricontinental Industries, Ltd. v. Pricewater-houseCoopers, LLP, 475 F.3d 824 (7th Cir. 2007) (Illinois law), and Kopka v. Kamensky & Rubenstein, 354 Ill. App. 3d 930 (2004), mere ability to foresee that Bank might be given a financial statement is insufficient where the statute specifically requries proof that the “primary intent” of the engagement was to benefit potential recipients. The client’s “primary intent” is irrelevant when the client itself sues the accountant for malpractice. The Bank's claims might have survived if the Knight trustee had brought the claims directly in the bankruptcy cases. However, because the Bank took an assignment of the claims and wanted to keep all potential proceeds for itself rather than seeking derivative standing from the Knight bankruptcy court to pursue Knight's malpractice claims on behalf of all creditors, its claim failed and Bank appropriately was entitled to 100% of nothing. All of the Bank’s theories against everyone other than the Accountants depended on proving the defendants committed fraud, but Bank did not plead fraud facts of any defendant with particularity pursuant to Fed. R. Civ. P. 9(b), particularity—which is to say, “the who, what, when, where, and how: the first paragraph of any newspaper story.” (citing DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)). Because an allegation that someone looted a corporation does not propound a plausible contention that a particular person did anything wrong, those claims failed to give notice to any defendant. After three attempts to amend the complaint to fix the pleading problems, the lower court properly exercised its discretion to dismiss the claims, with prejudice, rather to allow Bank to continue to add more words with adding more substance to the complaint. "In court, as in baseball, three strikes and you’re out."
- Procedural context:
- District Court dismissed all the Bank's claims on the pleadings for failure to meet the minimum notice requirements of Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
- Bank of America (Bank) lost about $34 million when Knight Industries, Knight Quartz Flooring, and Knight-Celotex (collectively Knight) went bankrupt. Outside of Knight's bankruptcy, Lender sued Knight’s accountants for failing to detect alleged defalcations or "looting" of Knight by Knight’s directors and managers. The complaint alleged that the accountants knew that Knight would furnish copies of the financial statements to lenders generally, but not that accountants knew that the "primary purpose" of the services was intended to specifically benefit the Bank. Bank made loans to Knight before the accountant defendants prepared their reports. Frost, Ruttenberg & Rothblatt, P.C., and FGMK, LLC, were Knight’s accountants (Accountants). Under Illinois state law, which all agreed supplied the rule of decision, Accountants invoked the protection of 225 ILCS 450/30.1, which provides that an accountant is lia-ble only to its clients unless the accountant itself committed fraud (which no one alleged) or “was aware that a pri-mary intent of the client was for the professional services to benefit or influence the particular person bringing the action” (§450/30.1(2)). Bank was permitted to amend the allegations of the 87-page complaint three times.
- EASTERBROOK, Chief Judge, and BAUER and KANNE, Circuit Judges
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