PRMConnect, Inc. v. Drumm and Company et al
Filing
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MEMORANDUM Opinion and Order. Signed by the Honorable Robert M. Dow, Jr on 5/26/2016. Mailed notice. (kp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PRMCONNECT, INC.
Plaintiff,
v.
JEAN DRUMM and
DRUMM AND COMPANY,
Defendants.
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Case No. 15-cv-417
Judge Robert M. Dow, Jr.
MEMORANDUM AND OPINION ORDER
Before the Court is Defendants’ consolidated motion for summary judgment [13]. For the
reasons set forth below, Defendants’ motion [13] is denied. This case is set for further status on
June 1, 2016, at 9:00 a.m.
I.
Background
Defendant Jean Drumm is a licensed Certified Public Accountant and a principal of
Defendant Drumm and Company, an Indiana-based accounting firm. In 2007, Plaintiff
PRMConnect, Inc. (then known as Hills-Kahn, Inc.), a software development company
incorporated in Illinois and based in Las Vegas, Nevada, hired Defendants to provide
“accounting, consulting, and payroll services.” [See 13-4, at 1.] The parties maintained this
relationship until either March 15 or April 1, 2014 (they disagree on the exact date), when
Plaintiff terminated Defendants and began using another accounting firm.
Although Defendants were hired to provide “accounting, consulting, and payroll
services,” at times their scope of work expanded beyond these three categories. For example, at
one point Defendants were tasked with establishing Plaintiff’s health insurance program. But the
parties dispute the extent to which Defendants responsibilities extended beyond these three
categories, particularly with respect to insurance matters. Plaintiff claims that Defendants were
responsible for insurance for Plaintiff from 2008 to 2014, and that Defendant Jean Drumm had
the ultimate role in managing, procuring, and renewing insurance policies. Defendants admit
that, at times, they assisted with insurance-related tasks (e.g., acting as a liaison between
PRMConnect, Inc. and its insurance representatives), but they claim that other PRMConnect,
Inc. employees did so as well, and Defendants deny that they were ever put in charge of the
company’s insurance matters.
In September 2012, Plaintiff relocated its office from 7313 Mount Kearsage in Las Vegas
to 7495 W. Azure Drive, also in Las Vegas. In February 2013, Plaintiff created a “task list” for
Defendants (the parties disagree as to the formality of this list, and whether it was a “final” list or
just a “starting point”), instructing them to, among other things, “[m]anage and renew any
insurance forms and requirements for business, key man, life, liability, and auto policies.” [22, at
5–6.] Regardless of whose responsibility it was, nobody updated Plaintiff’s property insurance
policy to reflect the change in address.
On April 8, 2014—either one or three weeks after Plaintiff terminated Defendants,
depending on whose date of termination you use—thieves broke into Plaintiffs’ Azure Drive
office and stole computer equipment and accessories. Plaintiff submitted a claim to Travelers
Insurance (its property insurer), which denied the claim because the policy was never updated to
cover Plaintiff’s Azure Drive office. On January 15, 2015, Plaintiff sued Defendants, arguing
that they were negligent in failing to update the address on the insurance policy. Now before the
Court is Defendants’ motion for summary judgment [13] on Plaintiff’s negligence claims.
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II.
Legal Standard
Summary judgment is proper where “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see also
Sallenger v. City of Springfield, Ill., 630 F. 3d 499, 503 (7th Cir. 2010) (citing Fed. R. Civ. P.
56(c)(2) and noting that summary judgment should be granted “if the pleadings, the discovery
and disclosure materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law”). In determining
whether summary judgment is appropriate, the court should construe all facts and reasonable
inferences in the light most favorable to the non-moving party. See Carter v. City of Milwaukee,
743 F. 3d 540, 543 (7th Cir. 2014). Rule 56(a) “mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against any party who fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and on which that
party would bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986)). Put another way, the moving party may meet its burden by pointing out to the court that
“there is an absence of evidence to support the nonmoving party’s case.” Id. at 325.
To avoid summary judgment, the opposing party then must go beyond the pleadings and
“set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 250 (1986) (internal quotation marks and citation omitted). For this
reason, the Seventh Circuit has called summary judgment the “put up or shut up” moment in a
lawsuit—“when a party must show what evidence it has that would convince a trier of fact to
accept its version of events.” See Koszola v. Bd. of Educ. of City of Chicago, 385 F. 3d 1104,
1111 (7th Cir. 2004). In other words, the “mere existence of a scintilla of evidence in support of
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the [non-movant’s] position will be insufficient; there must be evidence on which the jury could
reasonably find for the [non-movant].” Anderson, 477 U.S. at 252.
III.
Analysis
The parties agree that Illinois substantive law applies in this diversity suit, in which this
Court is tasked with using its “best judgment to estimate how the [Illinois] Supreme Court would
rule” on the disputed issues of state law. Valerio v. Home Ins. Co., 80 F.3d 226, 228 (7th Cir.
1996). To the extent that the Illinois Supreme Court has not spoken directly about an issue, the
Court may give “proper regard” to the state’s lower courts. Comm’r v. Estate of Bosch, 387 U.S.
456, 465 (1967). To succeed on a negligence claim under Illinois law, a plaintiff must prove
“that the defendant owed a duty to the plaintiff, that defendant breached that duty, and that the
breach was the proximate cause of the plaintiff’s injuries.” First Springfield Bank & Trust v.
Galman, 720 N.E.2d 1068, 1071 (Ill. 1999).
A.
Proximate Cause
Defendants’ primary argument is that they were not the proximate cause of Plaintiff’s
injury “because the independent, unforeseeable, superseding criminal act by the thieves broke the
causal chain between [Defendants’] alleged negligence and [Plaintiff’s] injury.” [13-1, at 5.] The
Court disagrees.
Proximate cause is composed of two distinct requirements: cause in fact and legal cause.
Lee v. Chicago Transit Auth., 605 N.E.2d 493, 502 (Ill. 1992); Fitzgibbon v. Nat’l Broad. Co.,
732 N.E.2d 64, 65 (Ill. App. Ct. 2000). To establish cause in fact, a plaintiff must show that the
defendant’s “conduct was a material element and a substantial factor in bringing about the
injury.” Lee, 605 N.E.2d at 502. “A defendant’s conduct is a material element and a substantial
factor in bringing about an injury if, absent that conduct, the injury would not have occurred.”
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First Springfield Bank & Trust v. Galman, 720 N.E.2d 1068, 1071 (Ill. 1999). Legal cause, by
contrast, “is essentially a question of foreseeability,” where courts must determine “whether the
injury is of a type that a reasonable person would see as a likely result of his or her conduct.” Id.
Subsumed within the legal cause analysis is the concept of intervening cause, which asks
whether an intervening act by a third party caused the injury despite a prior contributing action
by a defendant. This inquiry is encompassed by the “foreseeability” analysis of whether legal
cause exists. See Jinkins v. Evangelical Hosps. Corp., 783 N.E.2d 123, 127 (Ill. App. Ct. 2002)
(“Where there is an intervening act by a third person, the test we apply is whether the first
wrongdoer reasonably might have anticipated the intervening cause as a natural and probable
result of the first party’s own negligence.”). If the intervening act was not foreseeable, it breaks
the causal chain such that the first wrongdoer is not considered the proximate cause of the injury.
See, e.g., Billman v. Frenzel Const. Co., 635 N.E.2d 435, 439 (Ill. App. Ct. 1993) (“[T]his court
has affirmed summary judgments granted on the ground that negligent driving broke the chain of
causation.” (citations omitted)).
Defendants, citing mostly to inapposite auto-accident cases, argue that the thieves who
stole the equipment from Plaintiff’s building proximately caused Plaintiff’s injury because their
actions were unforeseeable and thus superseded any negligent acts by Defendants. But this case
is more akin to insurance-broker cases,1 in which courts recognize that the very purpose of
obtaining insurance is to protect against foreseeable losses, and thus the relevant inquiry for
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“‘Insurance broker’ is defined as ‘[a] person who, for compensation, brings about or negotiates contracts
of insurance as an agent for someone else, but not as an officer, salaried employee, or licensed agent of an
insurance company.’” Skaperdas v. Country Cas. Ins. Co., 28 N.E.3d 747, 753 (Ill. 2015) (quoting
Black’s Law Dictionary 220 (9th ed. 2009)); see id. at 752–53 (“A broker is an individual who procures
insurance and acts as a middleman between the insured and the insurer, who solicits insurance business
from the public under no employment from any special company and who, having secured an order,
places the insurance with the company selected by the insured, or in the absence of any selection by the
insured, with a company he selects himself.” (citations omitted)).
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proximate cause purposes is whether a policy was available that would have covered the loss
during the relevant policy period. If so, the failure to procure the policy is considered the
proximate cause of the uninsured loss. See Brothers Future Holdings, LLC v. Indiana Ins. Co.,
2015 WL 2070066, at *9–11 (Ill. App. Ct. May 1, 2015); Garrick v. Mesirow Fin. Holdings,
Inc., 994 N.E.2d 986, 993–94 (Ill. App. Ct. 2013); Green v. Kubota Tractor Corp., 2012 WL
1416465, at *6 (N.D. Ill. Apr. 24, 2012). Here, the parties appear to agree that a policy was
available that would have covered the loss during the relevant policy period—namely, the
existing policy that Plaintiff purportedly instructed Defendants to update to reflect Plaintiff’s
change of address. This implies that the loss in question was foreseeable, and thus the act of the
third-party thieves did not break the causal chain, thus rendering Defendants’ motion for
summary judgment on this issue unavailing. At a minimum, Defendants have failed to show, as a
matter of law, that the third-party actions of the equipment thieves was an intervening cause of
Plaintiff’s injury, and thus Defendants’ motion must be denied.
B.
Duty
Defendants argue that regardless of whether Plaintiff tasked Defendants with renewing
the insurance policy in question, Defendant Jean Drumm, as an employee of Defendant Drumm
and Company, only owed a duty to her employer, not to the third-party Plaintiff.2 The Court
disagrees.
Accountants owe a duty of care to their clients, and accountants who are negligent in
performing accounting services can be held individually liable to their clients for their negligent
acts. See, e.g., Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 636
N.E.2d 503, 514–15 (Ill. 1994) (“Accountants have long been held to be members of a skilled
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Whether a duty existed is a question of law to be decided by the court. See Kelley v. Carbone, 837
N.E.2d 438, 441 (Ill. App. Ct. 2005).
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profession, and liable for their negligent failure to observe reasonable professional competence.”
(quotation omitted)). Although an accountant’s firm also may owe duties (contractual, statutory,
or otherwise) to its clients that can subject it to liability, this does not override an individual
accountant’s duties to his or her client. Similarly, while an accountant may owe certain duties to
his or her accounting firm, those duties do not displace the accountant’s duties to his or her
client.
Defendants are correct that, generally speaking, an accountant does not owe a duty to a
“third party.” But what both parties fail to recognize is that PRMConnect, Inc. was Defendant
Drumm’s client, not a third party, and accountants do owe duties to their clients. See, e.g., Kopka
v. Kamensky & Rubenstein, 821 N.E.2d 719, 723 (Ill. App. Ct. 2004) (“The general rule in
Illinois is that an attorney [or an accountant] owes a duty of care only to his client and not to
third parties. * * * An attorney or an accountant owes a duty to a third party only where hired by
the client specifically for the purpose of benefitting that third party.” (citations omitted)). This
distinction is fatal to Defendants’ argument.
Further, even if Defendant Drumm was acting as an insurance broker at the relevant time,
as opposed to an accountant—a distinction that the parties dispute but do not address
substantively—insurance brokers also owe a duty of care to their clients, making Defendants’
argument unavailing in that context as well. See, e.g., 735 ILCS 5/2-2201(a); Country Mut. Ins.
Co. v. Carr, 852 N.E.2d 907, 915–16 (Ill. App. Ct. 2006), vacated on other grounds, In re
Country Mut. Ins. Co., 889 N.E.2d 209 (Ill. 2007); Brothers Future Holdings, LLC v. Indiana
Ins. Co., 2015 WL 2070066, at *9–10 (Ill. App. Ct. May 1, 2015) (“[W]hile Illinois law does
place a burden on the insured to know its needs for coverage and the contents of its policies, this
does not absolve the broker, who has been retained and compensated for his or her particular
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expertise in coverage, from the duty to competently carry out the explicit requests of the
insured.” (internal citation omitted)); Office Furnishings, Ltd. v. A.F. Crissie & Co., Ltd., 44
N.E.3d 562, 567–68 (Ill. App. Ct. 2015). Defendant Drumm is not entitled to summary judgment
on this basis either.
C.
Economic Losses
Defendant Drumm also claims that an accountant can only be held liable to a third party
if “physical harm results,”3 and argues that because Plaintiff only suffered a purely economic
loss, Plaintiff’s negligence claim against her must fail. Setting aside any discussion of
Defendant’s statement regarding accountant liability to third parties, this argument fails for the
same reason as Defendant Drumm’s preceding argument: PRMConnect, Inc. was Defendant
Drumm’s client, not a third party.
In her reply brief, Defendant Drumm shifts course and argues that the “economic loss”
doctrine—known as the Moorman doctrine in Illinois—bars recovery in this case. However, “it
is well-settled that arguments first made in the reply brief are waived.” Billhartz v. C.I.R., 794
F.3d 794, 801 n.4 (7th Cir. 2015) (quoting TAS Distrib. Co., Inc. v. Cummins Engine Co., Inc.,
491 F.3d 625, 630 (7th Cir. 2007)).
Regardless, even if the Court were to construe Defendant’s argument in her reply brief as
a “better developed” version of what appeared in her opening brief,4 Defendant’s argument is
still without merit. The economic loss doctrine “bars recovery in tort for purely economic losses
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Defendant relies on the Restatement (Second) of Agency § 352, which says that “[a]n agent is not liable
for harm to a person other than his principal because of his failure adequately to perform his duties to his
principal, unless physical harm results from reliance upon performance of the duties by the agent, or
unless the agent has taken control of land or other tangible things.”
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“[W]hile arguments made for the first time in [a] reply brief are generally treated as waived, it does not
follow that arguments that are better developed in [a] reply brief are waived[.]” Lara v. Lynch, 789 F.3d
800, 805 (7th Cir. 2015) (citing United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.2d 818, 837
& n.20 (7th Cir. 2011)).
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arising out of a failure to perform contractual obligations.” Wigod v. Wells Fargo Bank, N.A.,
673 F.3d 547, 567 (7th Cir. 2012); see also Moorman Mfg. Co. v. National Tank Co., 435 N.E.2d
443, 450 (Ill. 1982). The doctrine seeks to prevent disgruntled buyers from recovering more than
what they would in a breach of contract action. Id.; see also Am. United Logistics, Inc. v.
Catellus Dev. Corp., 319 F.3d 921, 926 (7th Cir. 2003) (“Contract law provides the proper
remedy for disappointed commercial expectations.”); Congregation of the Passion, 636 N.E.2d
at 513 (“Contract law serves a vital commercial function by providing sellers and buyers with the
ability to define the terms of their agreements with certainty prior to a transaction. Where the
duty of a seller has traditionally been defined by contract, therefore, Moorman dictates that the
theory of recovery should be limited to contract although recovery in tort would be available
under traditional tort theories.”). Thus, “[t]o recover in tort under the economic loss doctrine, a
party must show harm above and beyond a party’s contractual or commercial expectations.” Am.
United Logistics, 319 F.3d at 926; Wigod, 673 F.3d at 567 (“There are a number of exceptions to
the Moorman doctrine, each rooted in the general rule that ‘[w]here a duty arises outside of the
contract, the economic loss doctrine does not prohibit recovery in tort for the negligent breach of
that duty.’” (quoting Congregation of the Passion, 636 N.E.2d at 514)).
Although the doctrine emerged from cases involving the sale of goods (e.g., the plaintiff
in Moorman was a disgruntled purchaser of a grain storage tank), it soon evolved into the service
industry, where Illinois courts have applied the doctrine to claims stemming from real estate
transactions, electrical work, architectural services, etc., based on the common thread of a
contractually-delineated relationship:
A provider of services and his client have an important interest in being able to
establish the terms of their relationship prior to entering into a final agreement.
The policy interest supporting the ability to comprehensively define a relationship
in a service contract parallels the policy interest supporting the ability to
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comprehensively define a relationship in a contract for the sale of goods. It is
appropriate, therefore, that Moorman should apply to the service industry. Just as
a seller’s duties are defined by his contract with a buyer, the duties of a provider
of services may be defined by the contract he enters into with his client. When
this is the case, the economic loss doctrine applies to prevent the recovery of
purely economic loss in tort.
Congregation of the Passion, 636 N.E.2d at 514. But in doing so, the Illinois Supreme Court
clarified that “the doctrine is applicable to the service industry only where the duty of the party
performing the service is defined by the contract that he executes with his client. Where a duty
arises outside of the contract, the economic loss doctrine does not prohibit recovery in tort for the
negligent breach of that duty.” Id. (“The underlying issue is whether the duty an accountant owes
to his client is defined by his contractual obligations, or is extracontractual.”); Wigod, 673 F.3d
at 567 (“To determine whether the Moorman doctrine bars tort claims, the key question is
whether the defendant’s duty arose by operation of contract or existed independent of the
contract.”).
Applying those principles to the accounting industry, the Illinois Supreme Court
concluded that an accountant’s “knowledge and expertise cannot be memorialized in contract
terms, but is expected independent of the accountant's contractual obligations,” analogizing the
accountant–client relationship to the familiar attorney–client relationship. Congregation of the
Passion, 636 N.E.2d at 515. The court ultimately concluded that an accountant’s “duty to
observe reasonable professional competence exists independently of any contract,” such that
“[t]he economic loss doctrine does not bar recovery in tort for the breach of a duty that exists
independently of a contract.” Id. Similarly, to the extent that Defendant Drumm was acting as an
insurance broker at the relevant time, Illinois courts have concluded that the Moorman doctrine
does not apply to insurance brokers, either. See, e.g., Carr, 852 N.E.2d at 915–16 (Ill. App. Ct.
2006) (Moorman doctrine did not apply to insurance agent based on the agent’s extra-contractual
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duties owed to his client pursuant to 735 ILCS 5/2–2201(a)); Kanter v. Deitelbaum, 648 N.E.2d
1137, 1140 (Ill. App. Ct. 1995) (rejecting the argument the Moorman doctrine barred a claim
against an insurance broker because the broker owed a fiduciary duty to the insured that existed
outside of the contract); Freedom Mortg. Corp. v. Burnham Mortg., Inc., 720 F. Supp. 2d 978,
993 (N.D. Ill. 2010) (“Illinois courts have held that the Moorman doctrine may bar malpractice
claims of negligence against engineers and architects (who supply products such as drawings and
plans), but not claims against attorneys, accountants, insurance brokers, investment consultants,
and environmental consultants (who supply information such as advice and counseling).”);
Hartford Fire Ins. Co. v. Henry Bros. Constr. Mgmt. Servs., LLC, 877 F. Supp. 2d 614, 619–20
(N.D. Ill. 2012) (explaining the continuum of enterprises, with pure information providers at one
end and tangible good providers at the other, and situating accountants and insurance brokers on
the end of the spectrum where tort claims are not barred by the Moorman doctrine (citing Tolan
& Son, Inc. v. KLLM Architects, Inc., 719 N.E.2d 288, 296–97 (Ill. App. Ct. 1999))).
Accordingly, regardless of whether Defendant Drumm is considered an accountant or an
insurance broker, she still owed a duty to her client that existed outside of any contractual duty,
and thus Plaintiff’s negligence claim against Defendant Drumm is not barred by the Moorman
doctrine.
D.
Termination of Employment Relationship
Defendants argue that even if they owed Plaintiff a duty relating to the renewal of its
property insurance, that duty expired when Plaintiff terminated Defendants. And because the
theft of Plaintiff’s property occurred after that termination, Defendants argue that they cannot be
held liable for that injury. The Court disagrees. The relevant question is whether Defendants
breached their duty of care while that duty still existed. While the injury in question occurred
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after Defendants’ termination, the alleged breach(es) occurred while Defendants were still
working for Plaintiff. The fact that Defendants’ duties towards Plaintiff ended along with the
scope of their employment is irrelevant for determining whether Defendants breached their
duties during their term of employment. Accountants and/or insurance brokers are not off the
hook for negligent acts that occur during their term of employment simply because the injury
does not manifest until after their employment has ended.
Defendants’ sole authority for this argument, O’Rourke v. McIlvaine, 19 N.E.3d 714 (Ill.
App. Ct. 2014), is easily distinguishable. In that case, a construction company performed a job at
a residential home, and then several months later, long after the job was completed, one of the
workers broke into the home and injured the plaintiff. Although an employer owes a duty to
exercise reasonable care to control its employees, the court determined that the construction
company was not liable in this instance because the employer’s duty ended once the job was
completed. Id. at 722. Of the many differences between that case and this one, the key distinction
is that the alleged breach of the duty occurred after the duty expired—i.e., an employer does not
have a duty to control its employees once the term of employment has ended. But here,
Defendants (allegedly) breached their duty of care while that duty was still in effect. Thus,
Defendants are not entitled to summary judgment on this basis either.
IV.
Conclusion
For the foregoing reasons, Defendants’ consolidated motion for summary judgment [13]
is denied. This case is set for further status on June 1, 2016, at 9:00 a.m.
Dated: May 26, 2016
_________________________________
Robert M. Dow, Jr.
United States District Judge
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