On New Year’s Eve, the Illinois Appellate Court issued an unpublished order that affirmed the circuit court’s dismissal of colossal claims against a major accounting firm.  See Ritchie Capital Mgmt, LLC v. McGladrey & Pullen, LLP, 2019 IL App (1st) 180806-U (order issued Dec. 31, 2019).  The order, while unpublished and thus generally non-citable under Illinois Supreme Court Rule 23, confirms that the statute of limitations for claims against accounting professionals (735 ILCS 5/13-214.2) will be robustly and consistently enforced.  It also sheds light on the perhaps oft-misunderstood statutory tolling of limitations periods where litigation is stayed or enjoined (see 735 ILCS 5/13-216).  And, perhaps most surprisingly, a $100 million lawsuit was lost at the pleading stage because the plaintiffs opted not to directly test the limits of a bankruptcy stay and a related bankruptcy court-issued injunction against litigation. 

Section 13-214.2(a) of the Code of Civil Procedure provides that any claim against an accountant "for an act or omission in the performance of professional services 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."  Section 13-214.2(b) adds that in "no event shall such action be brought more than 5 years after the date on which occurred the act or omission alleged in such action to have been the cause of the injury to the person bringing such action against a public accountant." 

 The plaintiffs in Ritchie Capital Management alleged that the defendants’ accounting malpractice induced them to invest in a massive Ponzi scheme.  The plaintiffs filed suit well beyond the statute of repose (not to mention the two-year statute of limitations) but claimed that the limitations period had been tolled by an automatic bankruptcy stay and a related injunction issued by a bankruptcy court.  Although neither the plaintiffs nor the defendants had been parties to that bankruptcy — the debtor was the vehicle of the Ponzi scheme — the plaintiffs pointed out that the bankruptcy court had enforced the automatic stay as to similarly situated plaintiffs who tried to assert very similar claims against the same defendants, and had expressly enjoined similar litigation from proceeding while the bankruptcy estate was administered.  The plaintiffs invoked Section 13-216 of the Code of Civil Procedure, which provides: "When the commencement of an action is stayed by injunction, order of a court, or statutory prohibition, the time of the continuance of the injunction or prohibition is not part of the time limited for the commencement of the action."  See 735 ILCS 5/13-216.

This argument persuaded neither the circuit court, which dismissed the action as untimely, nor the appellate court, which affirmed the circuit court’s dismissal order.  The appellate court concluded that the automatic stay did not, in fact, apply to the plaintiffs’ claims, although the bankruptcy court could have stayed the action under section 105 of the Bankruptcy Code.  (Section 105 injunctions, the appellate court explained, are case-specific, unlike the automatic stay.)  In any event, "there was no specific injunction or court order barring their [i.e., the plaintiffs’] claims." See 2019 IL App (1st) 180806-U, ¶31 (emphasis added). And the bankruptcy court "should have had the opportunity to assess if proceeding on the claim affected the trustee’s work on behalf of the bankruptcy estate."  Id.  That did not occur, apparently because the plaintiffs incorrectly assumed that an automatic stay did bar litigation of their claims and thus tolled the limitations period.  And the plaintiffs could not rely on stays or injunctions directed against other litigants, even those who were similarly situated and who attempted to sue the same defendants based on the same or similar underlying facts.  The appellate court also was not persuaded by the plaintiffs’ argument that they may have been sanctioned by the bankruptcy court if they had attempted to sue earlier.

 In short, the statute of limitations for claims against accountants is robustly enforced.  And anyone who intends to rely on 735 ILCS 5/13-216 to toll a limitations period would be well advised to try to timely file suit, and if unsuccessful, to obtain a court order expressly finding that his or her specific claim is stayed or otherwise cannot be litigated while a stay or injunction is in place.  One cannot rely, for purposes of 735 ILCS 5/13-216, on a stay or injunction issued against somebody else.