Practice point: Accountants may be held liable for negligent misrepresentations
made to third parties with whom they have no contractual relationship,
but who have relied to their detriment on inaccurate financial
statements prepared by the accountant. In order to establish such liability, the relationship between
the accountant and the party must be found to approach privity, through a
showing that the following prerequisites are satisfied: (1) the
accountants must have been aware that the financial reports were to be
used for a particular purpose or purposes, (2) in the furtherance of
which a known party or parties was intended to rely; and (3) there must
have been some conduct on the part of the accountants linking them to
that party or parties, which evinces the accountants' understanding of
that party or parties' reliance.
Student note: Here, the Appellate Division found that allegations supporting the cause of action to recover
damages for negligent misrepresentation did not satisfy the third prong.
Viewing the complaint in the light most favorable to the plaintiff, as
amplified by the evidence submitted by the plaintiff in opposition to
the defendant's motion, the complaint failed to allege some conduct by
the defendant linking it to the plaintiff which evinced the
defendant's understanding of the plaintiff's reliance. Accordingly, the Supreme Court should have granted that branch of the defendant's motion to dismiss.
Case: Signature Bank v. Holtz Rubenstein Reminick, LLP, NY Slip Op 05564(2d Dept. 2013).
Here is the decision.
Tomorrow's issue: Motion for summary judgment in lieu of a complaint.
