On February 14, 2020, the Illinois Appellate Court, First District, made some law when it confirmed, apparently for the first time, that, under Illinois law, independent auditors do not owe a fiduciary duty to their clients. See Asian Human Services Family Health Center, Inc. v. James Wong, 2020 IL App (1st) 191049. While the word "client" might naturally prompt one to think in terms of fiduciary obligations, the Court’s conclusion that no such obligations exist in the case of an independent auditor’s relationship with its client is fairly intuitive and should not be surprising.
A fiduciary relationship is one of special trust between the parties and comes with heightened legal obligations to act with the utmost care, loyalty and fair dealing. An independent auditor, however, is just that independent. As the Court noted in Asian Human Services, such an auditor "acts independently, objectively and impartially." Id. at ¶ 16. On its face, an independent auditor that is a loyal advocate for the subject of its review cannot provide an independent audit.
Perhaps recognizing this, the plaintiff’s attorney stressed at oral argument that it was not the plaintiff’s position that an independent auditor is a fiduciary per se. Instead, the plaintiff’s theory was that, in this case, a fiduciary relationship arose by virtue of the "special relationship" between the auditor and its client. The Court acknowledged that "[a] fiduciary duty by special relationship’ may arise where one party places trust and confidence in another, thereby placing the latter party in a position of influence and superiority over the former." ¶ 18. Notwithstanding the plaintiff’s allegations in this connection, however, the Court focused squarely on the third-party defendant/appellee’s position as an independent auditor and essentially found it to be dispositive.
Specifically, the plaintiff alleged that it "placed its trust in appellee and relied heavily on his judgment as appellant’s long-time advisor and auditor,’" and that the auditor "gained superiority and influence over appellant." ¶ 4. Nevertheless, the Court found that the plaintiff’s "allegation that it trusted appellee because appellee acted as an independent auditor does not equate to exercising superiority over an entity that was subservient." ¶ 19. The auditor "did not provide appellant with investment and/or tax advice or maintain any superior influence over the appellant," rather, the auditor "provided independent, objective and impartial auditing." Id. at ¶ 21. Accordingly, no special circumstances existed to create a fiduciary duty to the plaintiff.
It bears noting that the Court engaged in this analysis in the context of a motion to dismiss, not at the summary judgment stage. The appellee’s undisputed position as the plaintiff’s independent auditor was enough to set aside even at the motion to dismiss stage the plaintiff’s "special circumstances" allegations.