Accounting Firms Shielded from Repeat Lawsuits from Taxpayers

The Appellate Court of Illinois affirmed the decision to dismiss a taxpayer lawsuit against a school district’s accounting firm based upon a res judicata theory – that is a claim that was once brought or could have been brought between the same parties is barred.

In Lutkauskas v. Ricker, et al., 2013 Il. App. (1st) 121112, a taxpayer sued his school district’s accounting firm alleging that the accounting firm was complicit in violating the school code by allowing the district’s working cash fund to be depleted without a school board resolution.  Despite the fact the taxpayers in this matter never brought suit before, the Court nonetheless determined the action was barred against the accounting firm based upon the doctrine of res judicata.  In general, res judicata can only apply to bar an action when the same parties or their privies are involved.  Here, the taxpayers argued they were not part of the previous action.  In rejecting that argument, the Court ruled that a taxpayer action is derivative in that it was being brought on behalf of the school district.  The key to the Court’s reasoning was that the claimed injury – the depletion of the working cash fund – was not personal to the taxpayers, but rather impacted the governmental entity.

While it remains to be seen whether courts in other jurisdictions would adopt the reasoning of the Illinois Court, it is a legal theory to be considered in defending a taxpayer action on behalf of a governmental entity or a derivative action brought on behalf of a corporation.

For more information on professional liability matters, contact Attorney Adam Shub at 207-791-3000 or a member of Preti Flaherty's Professional Liability Group.