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Board of Trustees of Cummunity College District No. 508 v. Coopers & Lybrand12/18/2003
UNPUBLISHED
Docket No. 94676-Agenda 10-May 2003.
The Board of Trustees of Community College District No. 508 (Board) sued the accounting firms of Coopers & Lybrand (Coopers) and Arthur Andersen (Andersen). The Board sought more than $50 million in compensatory damages, allegedly resulting from the failure of those firms to discover and report to the Board inappropriate investments made by Phillip R. Luhmann, the treasurer and chief financial officer of City Colleges of Chicago (City Colleges). The Board sought damages in tort from both Andersen and Coopers, jointly and severally, and also sought damages resulting from breach of contract from both firms. Prior to trial, Andersen settled with the Board and the Board filed an amended complaint seeking relief against only Coopers. The jury found damages on the tort claim in the amount of $23 million, reduced to $12.65 million because of the Board's contributory fault. The jury also awarded damages on the Board's contract claim. Both parties appealed.
The appellate court affirmed. 333 Ill. App. 3d 225. We granted Coopers' petition for leave to appeal (177 Ill. 2d R. 315), and the Board seeks cross-relief (155 Ill. 2d R. 318). We granted the American Institute of Certified Public Accountants leave to file a brief as amicus curiae in support of Coopers. 155 Ill. 2d R. 345. We now affirm in part and reverse in part, and remand the cause to the trial court with directions.
I. BACKGROUND
The Board is a body politic and corporate created under the Public Community College Act (110 ILCS 805/1-1 et seq. (West 1994)). The Board operates and manages the City Colleges of Chicago . City Colleges is a public agency and its investment policies must comply with the Public Funds Investment Act (Investment Act) (30 ILCS 235/1 et seq. (West 2002)). Accordingly, in 1988, 1990, and 1992, the Board adopted resolutions authorizing its treasurer to invest City Colleges' funds only in instruments permitted by the Investment Act. The resolutions provided that the funds should be invested only in securities guaranteed as to payment of principal and interest by the full faith and credit of the United States of America. The securities were required to be of a type that would mature or be redeemable before funds were needed, in the opinion of the treasurer, to provide for the Board's expenditures. The investment policy directed that securities should generally be purchased with the intent of holding to maturity so as to minimize interest rate risk. Despite this clear mandate, the treasurer, Luhmann, invested in securities not authorized by the resolutions. Further, he repeatedly engaged in a practice known as "pairing off" securities, buying a security and expecting to sell it for a profit before he was required to pay for it.
In February 1994, the Board chairman, Ron Gidwitz, learned that Luhmann had violated the City Colleges' investment policy and declared a "financial emergency." Luhmann was terminated, and the Board instructed City Colleges to sell the securities that did not comport with the investment policy as soon as prudently possible.
In its original complaint, the Board alleged that during fiscal years 1991, 1992, and 1993, Luhmann invested in securities not authorized by the Board's investment policy and in violation of the Investment Act. Andersen audited City Colleges' financial statements for the fiscal years 1991 and 1992. Coopers audited the financial statements for fiscal year 1993. The complaint alleged that the failure of the auditors to identify and report Luhmann's investment policy violations to the Board amounted to a breach of each firm's duty to comply with generally accepted a
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