Hassebrock v. Bernhoft et al

Filing 146

MEMORANDUM AND ORDER. Signed by Judge J. Phil Gilbert on 5/2/2014. (jdh)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
ORVIL DUANE HASSEBROCK and
EVELYN HASSEBROCK,
Plaintiffs,
Case No. 10-cv-679-JPG-DGW
vs.
ROBERT G. BERNHOFT, THE BERNHOFT
LAW FIRM, SC, ROBERT E. BARNES,
JOHN C. NOGGLE, CPA, TIM D. BREWER,
CPA, and JOHN C. NOGGLE, CPA, INC.,
Defendants.

MEMORANDUM AND ORDER
This matter comes before the Court on (1) defendants Robert G. Bernhoft and the
Bernhoft Law Firm, S.C.’s (collectively “Bernhoft Defendants”) motion to strike portions of
plaintiffs Orvil Duane Hassebrock (“Mr. Hassebrock”) and Evelyn Hassebrock’s (“Ms.
Hassebrock”) (collectively “Plaintiffs”) amended complaint and to dismiss plaintiffs’ amended
complaint (Doc. 44); (2) Plaintiffs’ motion to strike the Bernhoft Defendants’ reply (Doc. 57);
(3) defendant Tim D. Brewer, CPA’s (“Brewer”) motion to dismiss (Doc. 61); (4) defendants
John C. Noggle, CPA (“Noggle”) and John C. Noggle, CPA, Inc.’s (collectively “Noggle
Defendants”) motion to dismiss (Doc. 63); (5) defendant Robert E. Barnes’ motion to dismiss
(Doc. 92); (6) Barnes’ motion for leave to file supplemental authority (Doc. 94); and (7) the
Bernhoft Defendants’ appeal the magistrate judge’s denial of their motion to stay discovery
(Doc. 110). For the following reasons, the Court (1) grants in part and denies in part the
Bernhoft Defendants’ motion to dismiss (Doc. 44); (2) denies Plaintiffs’ motion to strike (Doc.
47); (3) denies Brewer’s motion to strike and dismiss (Doc. 61); (4) grants in part and denies in

part the Noggle Defendants’ motion to dismiss (Doc. 63); (5) grants in part and denies in part
Barnes’ motion to dismiss (Doc. 92); (6) denies as moot Barnes’ motion for leave to file
supplemental authority (Doc. 94); and (7) denies as moot the Bernhoft Defendants’ appeal of the
magistrate judge’s denial of their motion to stay discovery (Doc. 110).
1. Background
Taking as true Plaintiffs’ complaint, the Court will recount the history relevant to the
instant motions. Plaintiffs have a long history of legal troubles including disputes over
ownership interests in an oil field venture, attorney malpractice, and a federal criminal tax
prosecution. The troubles relevant to the instant motions begin back in the 1990s when Mr.
Hassebrock obtained a worker’s compensation settlement and invested that settlement in an oil
field venture with Deep Rock Energy (“Deep Rock”) and Ceja Corporation. Attorneys Sam
Feiber and George Woodcock represented Plaintiffs in and settled a claim against Deep Rock
stemming from a dispute over an ownership interest in the oil field venture. A dispute arose over
the amount of attorneys’ fees Plaintiffs owed Feiber and Woodcock out of the settlement.
Meanwhile, Mr. Hassebrock was the subject of a federal criminal tax investigation for
failure to pay income taxes. Ultimately, he was convicted of tax evasion and failure to file a tax
return for the 2004 tax year in the Southern District of Illinois, Case No. 09-cr-30080-MJR. He was
sentenced to three years in prison, three years supervised release, a fine of $74,000, and ordered to pay
$997,582.19 in restitution to the Internal Revenue Service.

Before Mr. Hassebrock’s conviction, Plaintiffs hired the Attorney Defendants1 to
represent them in several matters including: filing suit against Feiber and Woodcock to recover
attorneys’ fees wrongfully collected; review the Deep Rock settlement; review and potentially
file suit over losses resulting in another investment called Semper Libera; represent Mr.

1

The “Attorney Defendants” include the Bernhoft Defendants, Barnes, and Brewer.

2

Hassebrock in the federal criminal tax investigation; and to prepare and file several years’ worth
of the Plaintiffs’ tax returns. The Attorney Defendants failed to timely file a complaint against
Woodcock and Feiber. To remedy that oversight, Plaintiffs allege the Attorney Defendants
fraudulently attempted to invoke the discovery rule and asked Mr. Hassebrock to sign a
statement indicating he had “just discovered” the wrongful acts of Woodcock and Feiber. The
complaint states that “[t]he [Plaintiffs] believed this was wrong, and informed the Attorney
Defendants that they would not lie to protect them and that they would inform the judge in the
case of their wrongful and negligent acts” (Doc. 39, p. 6). Nevertheless, Mr. Hassebrock signed
the statement dated May 8, 2008, attesting that he had “just discovered” the wrongful acts, and
that statement was filed in the Circuit Court for the Fourth Judicial Circuit in Marion County,
Illinois, in a case entitled Hassebrock v. Fieber & Woodcock, Case Number 2008-L-8.2 Doc. 442, p. 10.
Ultimately, Plaintiffs had to hire another attorney to pursue their case against Fieber and
Woodcock. The claim was settled for $75,000 instead of the more than $400,000 that Feiber and
Woodcock had wrongfully retained. Plaintiffs further allege that the Attorney Defendants
wrongfully received at least $20,000 of the money collected from that settlement and never took
any action to recover damages related to the Semper Libera investment.
Plaintiffs further allege that the Attorney Defendants hired defendant John C. Noggle,
without Plaintiffs’ knowledge, to prepare and file their tax returns. Noggle prepared inaccurate
tax returns. For instance, he categorized the Deep Rock settlement as a “land settlement” rather
than an “oil field” settlement. Plaintiffs complained of the inaccuracies and asked the Attorney
Defendants to prepare accurate tax returns. The Attorney Defendants then retained Brewer

2

The Court takes judicial notice of Mr. Hassebrock’s affidavit filed in the state court case. See Ennenga v. Starns,
677 F.3d 766, 773 (7th Cir. 2012) (The Court may take judicial notice of matters of public record without converting
a motion to dismiss into a motion for summary judgment.).

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whose tax returns were also “grossly inaccurate.” Nevertheless, the Attorney Defendants had the
Brewer’s inaccurate tax returns filed with IRS Special Agent James Dye. Thereafter, Plaintiffs
terminated the Attorney Defendants. Plaintiffs estimate that they paid the Attorney Defendants
more than $181,330.
Mr. Hassebrock filed his pro se complaint on September 2, 2010. Thereafter, Mr.
Hassebrock obtained counsel and filed his first amended complaint on March 22, 2013, in which
Ms. Hassebrock was added as a plaintiff and Barnes, Jeffrey A. Dickstein, the Noggle
Defendants, and Brewer were added as defendants. Plaintiffs’ first amended complaint, the
operative complaint, alleges the following causes of action: (1) Count One – negligence against
all defendants; (2) Count Two - breach of contract against all defendants; (3) Count Three – legal
malpractice against the Attorney Defendants; (4) Count Four – breach of fiduciary duty against
the Accounting Defendants3; (5) Count Five - negligent misrepresentation against the
Accounting Defendants; (6) Count Six – aiding and abetting against the Accounting Defendants;
and (7) Count Seven – violation of the Illinois Consumer Fraud and Deceptive Business
Practices Act (“Illinois Consumer Fraud Act”) against the Attorney Defendants. Each remaining
defendant has filed a motion to dismiss. The Court will consider each of these motions, along
with Plaintiffs’ motion to strike and the Bernhoft Defendants appeal of the magistrate judge’s
order, in turn.
2. Motion to Strike (Doc. 57)
The Court will initially take up Plaintiffs’ motion to strike the Bernhoft Defendants’
reply. Plaintiffs argue the Court should strike the reply because Bernhoft Defendants failed to
state exceptional circumstances and file a motion for leave to file a reply. The Bernhoft

3

The “Accounting Defendants” include John C. Noggle, CPA, John C. Noggle, CPA, Inc., and Tim D. Brewer,
CPA.

4

Defendants did, however, set forth their exceptional circumstances. Further, this district does not
require parties to seek leave of court to file a reply. Plaintiffs cite to a case which cites to the
Local Rules for the Central District of Illinois, not the Southern District of Illinois. Accordingly,
the Court denies Plaintiffs’ motion to strike.
3. Motion to Dismiss Standard
When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all
allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to
state a claim, a complaint must contain a “short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This requirement is satisfied if the
complaint (1) describes the claim in sufficient detail to give the defendant fair notice of what the
claim is and the grounds upon which it rests and (2) plausibly suggests that the plaintiff has a
right to relief above a speculative level. Bell Atl., 550 U.S. at 555; see Ashcroft v. Iqbal, 129 S.
Ct. 1937, 1949 (2009); EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007).
“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 129
S. Ct. at 1949 (citing Bell Atl., 550 U.S. at 556).
In Bell Atlantic, the Supreme Court rejected the more expansive interpretation of Rule
8(a)(2) that “a complaint should not be dismissed for failure to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in support of his claim which would
entitle him to relief,” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Bell Atlantic, 550 U.S. at
561–63; Concentra Health Servs., 496 F.3d at 777. Now “it is not enough for a complaint to
avoid foreclosing possible bases for relief; it must actually suggest that the plaintiff has a right to

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relief . . . by providing allegations that ‘raise a right to relief above the speculative level.’”
Concentra Health Servs., 496 F.3d at 777 (quoting Bell Atl., 550 U.S. at 555).
Nevertheless, Bell Atlantic did not do away with the liberal federal notice pleading
standard. Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir.
2007). A complaint still need not contain detailed factual allegations, Bell Atl., 550 U.S. at 555,
and it remains true that “[a]ny district judge (for that matter, any defendant) tempted to write
‘this complaint is deficient because it does not contain . . .’ should stop and think: What rule of
law requires a complaint to contain that allegation?” Doe v. Smith, 429 F.3d 706, 708 (7th Cir.
2005) (emphasis in original). Nevertheless, a complaint must contain “more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell
Atl., 550 U.S. at 555. If the factual detail of a complaint is “so sketchy that the complaint does
not provide the type of notice of the claim to which the defendant is entitled under Rule 8,” it is
subject to dismissal. Airborne Beepers, 499 F.3d at 667. The Court further notes it may take
judicial notice of matters of public record without converting a motion to dismiss into a motion
for summary judgment. Ennenga v. Starns, 677 F.3d 766, 773 (7th Cir. 2012) (Fed. R. Civ. P.
12(d)).
4. Bernhoft Defendants’ Motion to Dismiss (Doc. 44)
The Bernhoft Defendants filed their motion to dismiss arguing that the First, Second,
Third, and Seventh causes of action against them should be dismissed. Specifically, they
contend that (1) the claims arising from the Deep Rock settlement and Semper Libera are barred
by the statute of limitations; (2) the claims based on allegations of deficient performance related
to tax issues are barred by the doctrine of issue preclusion; and (3) the cause of action contained

6

in Count Seven should be dismissed because attorneys are not subject to the Illinois Consumer
Fraud Act. The Court will consider each argument in turn.
a. Statute of Limitations Claims
In Count One, Plaintiffs allege the Bernhoft Defendants were negligent for failing to file
a complaint against Fieber and Woodcock prior to the expiration of the statute of limitations
period. Plaintiffs further allege the Bernhoft Defendants failed to timely file a complaint to
recover damages related to their investment in Semper Libera and they negligently failed to
supervise and retain satisfactory replacement accounting services or review the Accounting
Defendants’ work.
Under Illinois law
[a]n action for damages based on tort, contract, or otherwise (i) against an
attorney arising out of an act or omission in the performance of professional
services . . . must be commenced within 2 years from the time the person bringing
the action knew or reasonably should have known of the injury for which
damages are sought.
735 ILCS 13-214.3(b). Subsection 13-214.3(b) “incorporated the ‘discovery rule,’ which serves
to toll the limitations period to the time when the plaintiff knows or reasonably should know of
his or her injury.” Snyder v. Heidelberger, 953 N.E.2d 415, 418 (Ill. 2011).
i. Fieber and Woodcock Claim
First, the Court will address whether the statute of limitations bars the Plaintiffs’ claim
against the Bernhoft Defendants for failing to file a claim against attorneys Fieber and
Woodcock before the statute of limitations had run. The Plaintiffs’ complaint itself indicates that
the Plaintiffs knew that the Bernhoft Defendants were fraudulently trying to use the “discovery
rule” to bypass the statute of limitations requirement. The complaint even indicates that
Plaintiffs threatened to inform the judge of the attorneys’ “negligent behavior” and “they would

7

not lie to protect [the Attorney Defendants].” Despite the knowledge that the affidavit contained
false allegations concerning the discovery of Fieber and Woodcock’s negligent performance, Mr.
Hassebrock signed that affidavit on May 8, 2008, in an effort to work with the attorneys to save
his claim. Based on the face of the Plaintiffs’ complaint combined with Mr. Hassebrock’s statecourt affidavit it is easy to conclude that Mr. Hassebrock knew of the Bernhoft Defendants’
negligent behavior by at least May 8, 2008. Plaintiffs thus had until May 8, 2010, to file a timely
complaint. Mr. Hassebrock, however, did not file his initial complaint until September 2, 2010.
As such, the statute of limitations bars Plaintiffs’ claims against the Bernhoft Defendants for
failing to timely file claims against Fieber and Woodock.
ii. Semper Libera Investment Claim
Next, the Bernhoft Defendants argue that the Semper Libera claim was not asserted in the
original complaint and the allegations in the amended complaint do not relate back to the original
complaint. They do not argue that, had the claim been asserted in the original complaint, the
Semper Libera claim would have been untimely.
Pursuant to Federal Rule of Civil Procedure 15(c), “[a]n amendment to a pleading relates
back to the date of the original pleading when the law that provides the applicable statute of
limitations allows relation back.” Here, because Illinois law provides the applicable statute of
limitations, Illinois relation-back law is applicable. Illinois law provides for relation back only
when the following two requirements are met: “(1) the original complaint was timely filed, and
(2) the amended complaint grew out of the same transaction or occurrence set forth in the
original pleading.” Henderson v. Bolanda, 253 F.3d 928, 933 (7th Cir. 2001) (citing 735 ILCS
5/2-616(b)). An amended complaint will generally relate back to the original complaint “if the
factual situation upon which the action depends remains the same and has been brought to

8

defendant’s attention by the original pleading.” Henderson, 253 F.3d at 933 (citing 6A Charles
Alan Wright, Arthur R. Miller and Mary Kay Kane, Federal Practice and Practice and
Procedure Civil 2d, § 1497 at 95 (1990)).
In considering Hassebrock’s initial pro se complaint, the Court is mindful that “district
courts have a special responsibility to construe pro se complaints liberally . . . .” Donald v. Cook
County Sheriff’s Dept., 95 F.3d 548, 555 (7th Cir. 1996). Further, the Illinois Supreme Court has
explained that courts should “liberally construe” Illinois’ relation-back doctrine. Porter v.
Decatur Memorial Hosp., 882 N.E.2d 583, 590 (Ill. 2008). “[B]oth the statute of limitations and
section 2-616(b) [of the relation-back doctrine] are designed to afford a defendant a fair
opportunity to investigate the circumstances upon which liability is based while the facts are
accessible.” Id. The reasoning “behind the ‘same transaction or occurrence’ rule is that a
defendant is not prejudiced if ‘his attention was directed, within the time prescribed or limited, to
the facts that form the basis of the claim asserted against him.’” Id. (quoting Boatmen’s National
Bank, 656 N.E.2d 1101, 1107 (Ill. 1995)).
In his original pro se complaint, Hassebrock alleged as follows:
Hassebrock also had an investment in a company called Semper Libera from
Canada. Hassebrock had lost all of his investment with that company. Bernhoft
also said he would recover that loss and that he would be knocking on their doors.
Doc. 1, p. 7. This portion of Hassebrock’s pro se complaint coupled with his allegations of
malpractice were sufficient to put the Bernhoft Defendants on notice that Hassebrock’s cause of
action involved their alleged failure to investigate the Semper Libera claim. The fact that
Hassebrock did not mention the Semper Libera claim in a separate count is irrelevant especially
considering this Court’s duty to liberally construe his pro se complaint. Further, the alleged
harm arising from the Semper Libera claim arose from the same transaction or occurrence which

9

involved the retention of the Bernhoft Defendants to represent Hassebrock for the enumerated
matters. As such, the Court finds the Mr. Hassebrock asserted his claim involving the Semper
Libera investment in his original complaint. Alternatively, the Semper Libera claim relates back
to Hassebrock’s original complaint.
b. Issue Preclusion of Tax Issues
The Bernhoft Defendants ask the Court to dismiss any cause of action related to
Hassebrock’s income tax conviction. Earlier in this case Judge Stiehl concluded that Mr.
Hassebrock’s willfulness in committing tax evasion and failing to file his tax return was
precluded by his criminal trial. Specifically, Judge Stiehl noted that the element of willfulness
was an element found by the jury in the criminal trial and therefore precluded Hassebrock’s
fraud claim in this case. Judge Stiehl’s order, however, did not specify whether this finding
applied only to the 2004 tax year or whether it applied to all three years of 2003 through 2005.
Mr. Hassebrock’s indictment was only for his conduct pertaining to tax year 2004.
However, at sentencing, Judge Reagan included the years 2003 and 2005 in Mr. Hassebrock’s
relevant conduct.4 At sentencing, Judge Reagan explained as follows:
. . . for the years 2003, 2004, 2005, Mr. Hassebrock and his wife each earned
reported income but failed to file income tax returns. During these years, they
participated in the redemption theory, filed frivolous documents, falsely claimed
to be of Native American descent. He and his wife also attempted to pay their tax
liability with worthless sight drafts.
His guideline imprisonment range is computed on his tax liability for not
reporting his income in 2003, 4, 5, as well as his wife’s tax liability for the same
years as the conduct was considered jointly undertaken criminal activity.
Doc. 56-3. Plaintiffs argue that preclusion only applies to the year 2004 for which Mr.
Hassebrock was indicted. The Bernhoft Defendants argue that Mr. Hassebrock’s sentence was

4

Under the United States Sentencing Guidelines, relevant conduct is defined as acts that were “part of the
same course of conduct or common scheme or plan as the offense of conviction.” U.S.S.G. § 1B1.3(a)(2).

10

based on his relevant conduct which included the years 2003, 2004, and 2005, and thus
preclusion applies to all three years.
Under the doctrine of collateral estoppel, also known as issue preclusion, when a question
is actually and necessarily decided by a court of competent jurisdiction, that decision is
conclusive in all subsequent litigation involving a party to the prior litigation. See Adair v.
Sherman, 230 F.3d 890, 893 (7th Cir.2000).  To establish collateral estoppel, the following four
elements must be present: (1) the issue must be the same as that involved in the prior action, (2)
the issue must have been actually litigated in the prior action, (3) its determination must have
been necessary to the final judgment in the prior action, and (4) the party against whom estoppel
is invoked must have been fully represented in the prior action. H-D Mich., Inc. v. Top Quality
Serv., Inc., 496 F.3d 755, 760 (7th Cir. 2007); Meyer v. Rigdon, 36 F.3d 1375, 1379 (7th Cir.
1994).
Few courts have considered the preclusive effect of facts found at sentencing. In S.E.C.
v. Monarch Funding Corp., the Second Circuit declined to adopt a per se rule barring the
preclusive effect of factual findings at sentencing. 192 F.3d 295 (2d Cir. 1999). The court noted
two reasons against applying preclusive effect to sentencing findings. Id. First, applying issue
preclusion to sentencing findings may be unfair because a civil trial may provide greater
procedural opportunities, such as more intensive discovery, than a defendant receives at
sentencing. Id. Second, the incentive to litigate an issue at a sentencing hearing may not be as
great as it is at a civil trial. Id. Ultimately, the court concluded that
precluding relitigation on the basis of such findings should be presumed improper.
While we do not foreclose the application of the doctrine in all sentencing cases,
we caution that it should be applied only in those circumstances where it is clearly
fair and efficient to do so.
Id. at 306.
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The Court agrees with the Second Circuit’s conclusion that applying preclusive effect to
findings of fact at sentencing may not always be fair. Here, Bernhoft Defendants have failed to
establish that it would be clearly fair and efficient to apply preclusive effect to the factual
findings at Mr. Hassebrock’s sentencing, and the Plaintiffs have pleaded a claim that is plausible
on its face. As such, the Court will not expand Judge Stiehl’s finding of preclusion beyond the
year 2004, which is the date included within Mr. Hassebrock’s indictment.
c. Illinois Consumer Fraud Act Claim
Finally, the Bernhoft Defendants argue that Count Seven must be dismissed because the
Illinois Consumer Fraud Act does not provide a cause of action for former clients against their
former attorneys for an act or omission arising out of the attorney-client relationship. Plaintiffs
concede as much in their response, but state they “reserve the right to amend . . . .” Doc. 52, p.
8.
In Cripe v. Leiter, the Illinois Supreme Court concluded
that the legislature did not intend the Consumer Fraud Act to apply to regulate the
conduct of attorneys in representing clients. We hold that, where allegations of
misconduct arise from a defendant’s conduct in his or her capacity as an attorney
representing a client, the Consumer Fraud Act does not apply.
703 N.E.2d 100, 107 (Ill. 1998). Accordingly, Plaintiffs’ Illinois Consumer Fraud Act claim
against the Bernhoft Defendants fails and the Court grants the Bernhoft Defendants’ motion to
that extent.
5. Brewer’s Motion to Strike and Dismiss (Doc. 61)
Brewer filed his motion to strike and dismiss. His motion simply adopts the Bernhoft
Defendants issue preclusion arguments. Specifically, he seeks to dismiss Plaintiffs’ complaint to
the extent is related to Mr. Hassebrock’s income tax-related convictions. The Court denies

12

Brewer’s motion to dismiss for the same reason it denied the portion of the Bernhoft Defendants’
motion to dismiss arguing these issues should be precluded.
6. Noggle Defendants’ Motion to Dismiss (Doc. 63)
The Noggle Defendants filed their motion to dismiss claiming that (1) the causes of
action against the Noggle Defendants are barred by collateral estoppel, (2) the complaint fails to
state a cause of action against the Noggle Defendants for negligence or breach of contract, (3)
Noggle did not owe a fiduciary duty to Plaintiffs, (4) the negligent misrepresentation claim fails
because Noggle did not owe Plaintiffs a duty, (5) the complaint fails to allege facts supporting an
aiding and abetting claim, (6) the request for attorney’s fees should be stricken, and (7) punitive
damages should be stricken. The Court rejects the collateral estoppel argument for the same
reason it rejected the Bernhoft Defendants’ collateral estoppel argument. The Court will
consider the remaining arguments in turn.
a. Negligence Claim
In order to state a professional negligence claim, a plaintiff must allege “(1) the existence
of a professional relationship, (2) a breach of duty arising from that relationship, (3) causation,
and (4) damages.” SK Partners I, LP v. Metro Consultants, Inc., 944 N.E.2d 414, 416 (Ill. App.
Ct. 2011). Under Illinois law, “[a]n attorney or an accountant owes a duty to a third party only
where hired by the client specifically for the purpose of benefitting the third party.” Kopka v.
Kamensky & Rubenstein, 821 N.E.2d 719, 723 (Ill. App. Ct. 2004). To survive a motion to
dismiss, the non-client third party must allege “that the primary intent of the client was for the
professional services to benefit or influence the third party.” Id. at 723-24.
Here, Plaintiffs have alleged that Noggle was retained by Bernhoft for the purpose of
completing the Plaintiffs’ tax returns. Under this arrangement, it is obvious that the primary

13

purpose of Noggle was to benefit the Plaintiffs. Plaintiffs alleged the Noggle Defendants
breached that duty by making errors on the tax returns including “incorrectly categoriz[ing] the
Deep Rock settlement in the 2004 return as a ‘land settlement,’ when in fact it was an oil field
settlement,’ and “fail[ing] to include numerous authorized deductions, misstated earnings . . . .”
Doc. 39, p. 7. Plaintiffs allege causation and damages by alleging that the Noggle Defendants’
acts “damaged the [Plaintiffs] and further caused them to incur tens of thosuands of dollars in
additional accounting and attorney’s fees . . . .” Doc. 39, p. 10. Accordingly, Plaintiffs have
stated a claim against the Noggle Defendants that is plausible on its face.
b. Breach of Contract Claim
The Plaintiffs’ first cause of action alleges negligence against the Noggle Defendants,
among other defendants in this case. The Noggle Defendants argue this claim must be dismissed
because Plaintiffs fail to allege they were third-party beneficiaries or had a direct relationship
with the Noggle Defendants.
Pursuant to Illinois law, a plaintiff must allege the following elements to state a breach of
contract claim: “(1) a valid and enforceable contract existed; (2) the plaintiff performed
according to the contract (3) the defendant breached the contract; and (4) the breach resulted in
damages.” Zurich Capital Markets, Inc. v. Coglianese, 332 F. Supp. 2d 1087, 1122 (N.D. Ill.
2004) (citing D.S.A. Fin. Corp. v. County of Cook, 801 N.E.2d 1075, 1078 (Ill. 2003)). A third
party may bring a breach of contract claim if the contract was entered into for the purpose of
directly benefitting that third party. Industrial Hard Chrome, Ltd. v. Hetran, Inc., 64 F. Supp 2d
741, 745 (N.D. Ill. 1999) (citing F.W. Hempel & Co., Inc. v. Metal World, Inc., 721 F.2d 610,
613 (7th Cir. 1983)). “A party is a ‘direct’ beneficiary – and therefore a third-party beneficiary

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to the contract – if the parties to the agreement manifested an intent to confer a benefit upon that
third party.” Industrial Hard Chrome, Ltd., 64 F. Supp. 2d at 744.
Here, Plaintiffs have pled that the Bernhoft Defendants entered into a contract with
Noggle for the purpose of preparing the Plaintiffs’ tax returns. This allegation is sufficient to
establish that the purpose of the contract was to directly benefit Plaintiffs and Noggle knew the
contract was for the purpose of benefitting the Plaintiffs. Plaintiffs further alleged Noggle
breached the contract when he made mistakes on the tax return documents. That breach, as
alleged by Plaintiffs, caused Plaintiffs damages in that they paid for additional services as a
result. Accordingly, Plaintiffs’ allegations put the Noggle Defendants on notice of the nature of
their claim and are sufficient to survive a motion to dismiss.
c. Breach of Fiduciary Duty Claim
The Noggle Defendants next argue that Plaintiffs’ breach of fiduciary duty claim
contained in Count Four should be dismissed because the Plaintiffs failed to allege Noggle owed
Plaintiffs a fiduciary duty. To survive a motion to dismiss, “[a] claim ‘for breach of fiduciary
duty must set forth . . . that a fiduciary relationship existed between the parties, that the trustee
owed certain, specific duties to the plaintiff, that the trustee breached those duties, and that there
were resulting damages.’” Adams v. Catrambone, 359 F.3d 858, 866 (7th Cir. 2004) (quoting
Chi. City Bank & Trust Co. v. Lesman, 542 N.E.2d 824, 826 (1989)). Under Illinois law, “for a
nonprivity third party to hold an accountant liable, the party must show that the client intended
for the accountant’s work to benefit or influence the third party and that the accountant had
knowledge of that intent.” Kopka v. Kamensky & Rubenstein, 821 N.E.2d 719, 727 (Ill. App. Ct.
2004).

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Here, Plaintiffs’ alleged that “as a result of the accounting Defendants’ superior expertise
as CPAs and accounting firms with years of experience, a fiduciary relationship existed between
the parties.” Doc. 39, p .14. It is clear from the complaint that the Bernhoft Defendants engaged
Noggle for the purpose of preparing Plaintiffs’ tax returns and Noggle was aware of that purpose.
Plaintiffs further allege that they relied on the expertise of the accountants, Noggle breached that
duty by preparing a deficient tax return, and Plaintiffs suffered damages to the extent the
Attorney Defendants had to seek and the Plaintiffs ultimately paid for further tax preparation
services. As such, Plaintiffs’ breach of fiduciary duty claim against the Noggle Defendants is
sufficient to survive a motion to dismiss.
d. Negligent Misrepresentation Claim
The Noggle Defendants argue that Plaintiffs’ negligent misrepresentation claim should be
dismissed because the Noggle Defendants did not owe a duty to Plaintiffs and Plaintiffs failed to
allege the Noggle Defendants caused damages to Plaintiffs. The Court has already explained in
this order that Plaintiffs sufficiently alleged a duty and damages. As such, Plaintiffs have
sufficiently alleged a claim for negligent misrepresentation against the Noggle Defendants.
e. Aiding and Abetting
Next, the Noggle Defendants argue that Plaintiffs failed to state a claim for aiding and
abetting. To state a claim for aiding and abetting under Illinois law, Plaintiffs must allege “(1)
the party whom the defendant aids performed a wrongful act causing an injury, (2) the defendant
was aware of his role when he provided the assistance, and (3) the defendant knowingly and
substantially assisted the violation.” Hefferman v. Bass, 467 F.3d 596, 601 (7th Cir. 2006)
(citing Thornwood, Inc. v. Jenner & Block, 799 N.E.2d 756, 767 (Ill. 2003)). Here, Plaintiffs
have failed to allege anything more than a formulaic recitation of the elements of aiding abetting.

16

Specifically, Plaintiffs have failed to alleged facts suggesting that Noggle was aware of his role
in the alleged wrongful act when he provided assistance to the Attorney Defendants or that
Noggle knowingly and substantially assisted in any violation. The allegations suggest no more
than the preparation of a deficient tax return. As such, Plaintiffs’ aiding and abetting claim
against the Noggle Defendants simply fails to raise a right to relief beyond the speculative level.
Accordingly, the Court dismisses without prejudice the aiding and abetting claim against the
Noggle Defendants.
f. Attorney’s Fees
The Noggle Defendants argue that Plaintiff’s request for attorney’s fees must be
dismissed because there is no appropriate basis for the award of attorney’s fees based on
Plaintiffs’ causes of action. “Illinois generally follows the ‘American Rule’: absent statutory
authority or a contractual agreement between the parties, each party to litigation must bear its
own attorney fees and costs, and may not recover those fees and costs from an adversary.”
Morris B. Chapman & Assoc., Ltd. v. Kitzman, 739 N.E.2d 1263, 1271 (Ill. 2000). Plaintiffs
have failed to assert any specific statutory or contractual basis to support an award of attorney’s
fees in this case. Because Plaintiffs have failed to allege a legal basis for their claim for
attorney’s fees, the Court strikes Plaintiffs’ request for attorney’s fees.
g. Punitive Damages
Finally, the Noggle Defendants argue the Plaintiffs’ prayer for punitive damages should
be stricken because Plaintiffs fail to allege the Noggle Defendants’ actions were intentional or
reckless. Illinois law recognizes punitive damages “only ‘where the alleged misconduct is
outrageous either because the acts are done with malice or an evil motive or because they are
performed with a reckless indifference toward the rights of others.’ Parks v. Wells Fargo Home

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Mortg., Inc., 398 F.3d 937, 942 (7th Cir.2005) (citing Smith v. Prime Cable of Chi., 658 N.E.2d
1325, 1336 (Ill. App. Ct. 1995)); accord Doe v. Chand, 781 N.E.2d 340, 349 (Ill. App. Ct. 2002)
(“Punitive damages are warranted where an otherwise negligent act is accompanied by
outrageous conduct or acts committed with malice or reckless indifference to the rights of
others.”). The allegations pertaining to the Noggle Defendants simply state that Noggle
improperly prepared Plaintiffs’ tax returns. Plaintiffs have failed to allege that any of Noggle’s
conduct was outrageous or would arise to a level sufficient to support an award of punitive
damages. Accordingly, the Court strikes Plaintiffs’ request for punitive damages to the extent
Plaintiffs seek punitive damages against the Noggle Defendants.
7. Barnes’ Motion to Dismiss (Doc. 92)
Defendant Barnes argues that the claims against him should be dismissed because Barnes
was merely an agent of Bernhoft. As such, Barnes argues he cannot be held liable for the
Bernhoft Defendants’ actions. Alternatively, Barnes argues the complaint should be dismissed
because all causes of actions are barred by the statute of limitations, the causes of actions arising
from Plaintiffs’ criminal representation are barred by issue preclusion, and a former client cannot
bring a claim against an attorney under the Illinois Consumer Fraud Act. The Court will
consider each argument in turn.
a. Agent Argument
First, Barnes argues the complaint must be dismissed because Plaintiffs merely allege
Barnes was an agent of the Bernhoft Defendants and allege no other facts pertaining to Barnes.
In support of this argument, Barnes refers this Court to an order from the Western District of
Texas in which the Court dismissed Barnes from a malpractice claim because the plaintiff in that
case only alleged that Barnes was a partner of the Bernhoft Law Firm. See Davis v. Bernhoft, et

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al., Case No. A-13-CA-354-SS, Doc. 46 (W.D. Tex. Nov. 11, 2013). Here, however, Plaintiffs
did not merely allege Barnes was Bernhoft’s agent. Rather, Plaintiffs’ allege that Barnes
committed the acts alleged and includes Barnes with the “Attorney Defendants.” As such, the
complaint is facially sufficient, and the Court denies Barnes’ motion in that respect.
b. Statute of Limitations
This Court already concluded that the statute of limitations barred Plaintiffs’ claims
against the Bernhoft Defendants for any claim arising out of the failure to file a timely claim
against Fieber and Woodcock. For those same reasons, the Court grants Barnes’ motion to
dismiss to the extent he argues the statute of limitations bars a claim against him for failing to
timely file a claim against Fieber and Woodcock.
c. Issue Preclusion
Barnes next argues Plaintiffs’ complaint should be dismissed to the extent it is based on
allegations of deficient performance relating to Plaintiffs’ criminal tax investigation. As
explained earlier in this order, the Court will not at this time preclude any issues related to
Plaintiffs’ criminal tax representation beyond the year 2004, which was the year of which Mr.
Hassebrock was convicted. Accordingly, Barnes’ motion is denied in that respect.
d. Illinois Consumer Fraud Act
The Court dismisses the Illinois Consumer Fraud Act claim against Barnes for the same
reason the Court dismissed that claim against the Bernhoft Defendants.
8. Barnes’ Motion for Leave to File Supplemental Authority (Doc. 94)
In his motion for leave to file supplemental authority, Barnes seeks leave to file
supplemental authority from the case Davis v. Bernhoft, et al., Case No. A-13-CA-354-SS, Doc.
46 (W.D. Tex. Nov. 11, 2013). The Court has already considered that case and distinguished it

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from the allegations in the instant complaint. As such, the Court denies as moot Barnes’ motion
for leave to file supplemental authority.
9. Bernhoft Defendants’ Appeal of the Magistrate Judge’s Order (Doc. 110)
Finally, the Bernhoft Defendants filed an appeal of Magistrate Judge Wilkerson’s order
denying their second motion to stay discovery pending this Court’s ruling on their dispositive
motions. As the Court has now ruled on all outstanding dispositive motions, the Court denies as
moot the Bernhoft Defendants’ appeal.
10. Conclusion
For the foregoing reasons, the Court


DENIES Plaintiffs’ motion to strike (Doc. 57);



GRANTS in part and DENIES in part the Bernhoft Defendants’ motion to
dismiss (Doc. 44). Specifically, the Court grants the motion to the extent it
dismisses any claims against the Bernhoft Defendants for (1) failure to timely file
a claim against Fieber and Woodock; and (2) violation of the Illinois Consumer
Fraud Act. The Court denies the motion to dismiss to the extent the Court finds
(1) the Semper Libera claim relates back to the original complaint; and (2) issue
preclusion does not preclude issues related to years other than 2004;



DENIES Brewer’s motion to strike and dismiss (Doc. 61);



GRANTS in part and DENIES in part the Noggle Defendants’ motion to
dismiss (Doc. 63). Specifically the Court grants the motion to the extent it
dismisses the aiding and abetting claim against the Noggle Defendants, strikes the
request for attorney’s fees, and strikes the request for punitive damages. The

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Court denies the motion with respect to the negligence claim, breach of contract
claim, fiduciary duty claim, negligent misrepresentation claim;


GRANTS in part and DENIES in part Barnes’ motion to dismiss (Doc. 92).
Specifically, the Court grants the motion to the extent it dismisses (1) the
negligence claim based on the failure to timely file a claim against Fieber and
Woodcock and (2) the Illinois Consumer Fraud claim. The Court denies the
motion to the extent it finds (1) Plaintiffs did not merely allege Barnes was an
agent of the Bernhoft Defendants and (2) issue preclusion does not apply beyond
tax year 2004;



DENIES Barnes’ motion for leave to file supplemental authority (Doc. 94); and



DENIES as moot the Bernhoft Defendant’s appeal of the magistrate judge’s
denial of their second motion to stay discovery (Doc. 110).

Subsequent to this order, the following claims remain pending:


Count One: Negligence claim against all defendants with the exception of any
claim regarding the failure to timely file a complaint against Fieber and
Woodcock;



Count Two: Breach of Contract claim against all defendants with the exception of
any claim regarding the failure to timely file a complaint against Fieber and
Woodcock;



Count Three: Legal Malpractice claim against the Attorney Defendants with the
exception of any claim regarding the failure to timely file a complaint against
Fieber and Woodcock;



Count Four: Breach of Fiduciary Duty claim against the Accounting Defendants;

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

Count Five: Negligent Misrepresentation claim against the Accounting
Defendants; and



Count Six: Aiding and Abetting Claim against the Accounting Defendants except
the Noggle Defendants.

IT IS SO ORDERED.
DATED: May 2, 2014

s/ J. Phil Gilbert
J. PHIL GILBERT
DISTRICT JUDGE

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