10. McGladrey conducted a financial audit of Subspecialty Centers of America, LLC (SCA). SCA is owned by Dr. Mark S. Weinberger, an ear, nose, and throat surgeon. The audit was for the year ending December 31, 2003. McGladrey issued its audit report in March 2004. The audit report indicated that SCA’s “balance sheet presents fairly in all material respects to the financial position of SCA in conformity with generally accepted auditing standards.” Citibank received the audit report and in June 2004 made a $1.4 million term loan to SCA. The term loan was a modification of a prior term loan that Citibank had made to SCA. Prior to 2004, Citibank had four outstanding loans to SCA:
(1) A mortgage loan for its diagnostic surgery center;
(2) A mortgage loan for its office condominium;
(3) A revolving line of credit; and
(4) A term loan. The
2004 term loan was an increase and an extension of the prior term loan. Dr. Weinberger took the $1.4 million and left for Europe. Dr. Weinberger was subsequently located residing in a tent in the Italian Alps and was brought back to the United States in 2010. Hundreds of malpractice suits were filed against him, and federal prosecutors charged him with multiple counts of health care fraud. Citibank brought suit to recover money it loaned SCA ($1.4 million term loan) from
McGladrey on the grounds that it negligently audited Dr. Weinberger’s surgical practice. Citibank claims that it relied on McGladrey’s audit in making the $1.4 million term loan to SCA. Discuss whether Citibank would be able to recover and under what theories and standing. [Citibank, N.A. v. McGladrey and Pullen, LLP, 953 N.E.2d 38(Ill. App.)]
SOLUTION
The court also held that Citibank had made many loans to SCA and that the $1.4 million loan was part of an entire package of lending agreements and that the jury was permitted to consider the relationship as part of its determination of whether McGladrey was responsible for the information that led to the loan, i.e., the clean audit opinion. The court held that the decision to lend was based on other factors and not simply the audit and financial report of McGladrey. [Citibank, N.A. v. McGladrey and Pullen, LLP, 953 N.E. 2d 38 (Ill. App.)]