United States Court of Appeals

For the First Circuit

No. 00-2408

NORTH AMERICAN SPECIALTY INSURANCE COMPANY,

Plaintiff, Appellant,

v.

DAVID LAPALME ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

Boudin, Chief Judge,

Selya, Circuit Judge,

and Schwarzer,* Senior District Judge.

Peter B. McGlynn, with whom Bruce D. Levin and Bernkopf,

Goodman & Baseman LP were on brief, for appellant.

Warren D. Hutchison, with whom Nancy M. Reimer and Donovan

Hatem LP were on brief, for appellees.

August 2, 2001
______________

*Of the Northern District of California, sitting by designation.
-3-

SELYA, Circuit Judge. Audit reports and financial

statements are staples of the accounting profession. Accuracy

is a paramount concern, for much can turn on a relatively minor

bevue. But mistakes occur, and courts have grappled with the

extent of an accountant's liability to third parties (i.e., nonclients) for such errors. This appeal requires us to enter the

fray.

The case at hand involves ostensible misstatements

attributed to the carelessness of the defendants (an accounting

firm and one of its principals). The court below, ruling on a

motion for summary judgment, concluded that even if the

financial statement prepared by the defendants for their client

corporation contained negligent misrepresentations, the

defendants were not liable to the plaintiff (a third party) for

those misrepresentations. Although our appraisal of the

governing law differs in one salient respect from that of the

lower court, we reach the same conclusion. Accordingly, we

affirm.

I. BACKGROUND

A brief recitation of the facts suffices to put the

pivotal legal issue into perspective. Following the

conventional summary judgment praxis, we recount the facts in

the light most favorable to the nonmovant (here, the plaintiff).
-4-

Houlton Citizens' Coalition v. Town of Houlton, 175 F.3d 178,

184 (1st Cir. 1999).

In the 1980s, Jeffrey Canty formed Canty Roofing and

Sheetmetal, Inc. (CRS). As the name implies, CRS's principal

business was the installation and repair of roofs. For much of

CRS's existence, the firm of Dias & Lapalme (D&L) rendered

accounting services to it. The partner in charge was David

Lapalme. For the most part, the work was mundane, involving,

inter alia, the preparation of annual financial statements and

tax returns.

Over the years, CRS installed and repaired roofs on a

variety of public and private buildings. Contractors working on

public construction projects in Massachusetts are required by

statute to post payment and performance bonds on a project-byproject basis. See Mass. Gen. Laws ch. 149, § 29. CRS

routinely bid on public works jobs and, thus, from time to time

required bonds.

In 1994, Martin Donovan, an insurance broker,

introduced CRS to plaintiff-appellant North American Specialty

Insurance Co. (NASI). At Donovan's instance, NASI inspected

CRS's financial records and Canty's personal finances.

Apparently satisfied with the results of its review, NASI

entered into a bonding relationship with CRS. Once this
1In "Note D - Notes Payable," D&L indicated the CRS's line

of credit was secured, inter alia, by "a personal guarantee by

the Corporation's sole stockholder." In "Note F - Related Party

Transactions," D&L reported both that "[t]he Company is involved

in a related party transaction through the rental of equipment

from a corporation wholly owned by the same stockholder," and

that "[t]he Company is involved in a related party transaction

through the rental of real estate owned by the stockholder."

-5-

relationship commenced, NASI told Canty that CRS would be

required to provide updated financial statements, prepared by an

independent certified public accountant, for each succeeding

calendar year.

In late 1995, Canty agreed to sell CRS to a group

composed of three businessmen, namely, Robert Cote, Paul Flynn,

and David Beasley. The transfer of ownership, structured as a

sale of stock, occurred on December 29, 1995. Shortly

thereafter, D&L prepared an independent, review-level financial

statement for CRS with respect to calendar year 1995. This

statement, issued by D&L on March 25, 1996, lacked specific

information anent the change in ownership. To make matters

worse, the notes to the financial statement contained three

arguably misleading comments that implied Canty's continuing

participation as CRS's sole shareholder (or so NASI now

contends). We summarize these comments in the margin.1

CRS thereafter obtained new contracts for work on

public buildings. To facilitate these engagements, NASI wrote
-6-

bonds (relying, it claims, on the 1995 financial statement)

totaling $847,630 on June 14, 1996, and bonds totaling $874,500

on August 21, 1996. But CRS foundered under the stewardship of

its new owners and eventually defaulted on these bonds. This

calamity forced NASI, qua surety, to step into the breach.

Doing so cost it nearly $2,000,000.

Invoking diversity jurisdiction, 28 U.S.C. § 1332(a),

NASI sued D&L and Lapalme in the United States District Court

for the District of Massachusetts. It charged the accountants

with negligent misrepresentation and deceptive trade practices.

NASI grounded its complaint on the assertion that, but for the

accountants' omission of accurate ownership information in the

1995 financial statement, it would not have continued furnishing

bonds for CRS (and, therefore, would have avoided the ensuing

losses). After allowing an extended period for pretrial

discovery, the district court granted summary judgment in the

defendants' favor.

This timely appeal ensued. In it, NASI challenges the

district court's interpretation and application of the legal

regime governing an accountant's liability to third persons and

maintains that, under a proper formulation of the law, the

existence of genuine issues of material fact would preclude the

entry of summary judgment.
-7-

II. SOME THRESHOLD PRINCIPLES

We preface our discussion of the central issue with a

reminder as to certain threshold principles that inform our

analysis. Summary judgment is appropriate only when "the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that

the moving party is entitled to a judgment as a matter of law."

Fed. R. Civ. P. 56(c). In reviewing an order granting summary

judgment, we construe the record and all reasonable inferences

from it in favor of the summary judgment loser. Grant's DairyMe., LLC v. Comm'r of Me. Dep't of Agric., Food & Rural Res.,

232 F.3d 8, 14 (1st Cir. 2000); Houlton Citizens' Coalition, 175

F.3d at 184. Our review is plenary, so that we may, "if the

occasion arises, reject the rationale employed by the lower

court and still uphold its order for summary judgment." Perez

v. Volvo Car Corp., 247 F.3d 303, 310 (1st Cir. 2001) (citation

and internal quotation marks omitted).

In this diversity case, we look to state law (here, the

law of Massachusetts) for the substantive rules of decision.

Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Fithian v.

Reed, 204 F.3d 306, 308 (1st Cir. 2000). In such matters, we

are bound by the teachings of the state's highest court.
-8-

Blinzler v. Marriott Int'l, Inc., 81 F.3d 1148, 1151 (1st Cir.

1996). "In the absence of a definitive ruling by the highest

state court, a federal court may consider analogous decisions,

considered dicta, scholarly works, and any other reliable data

tending convincingly to show how the highest court in the state

would decide the issue at hand . . . ." Gibson v. City of

Cranston, 37 F.3d 731, 736 (1st Cir. 1994) (citation and

internal quotation marks omitted). Our duty is to make an

informed prophecy — to "discern the rule the state's highest

court would be most likely to follow under these circumstances,

even if our independent judgment might differ." Ambrose v. New

Engl. Ass'n of Schs. & Colls., 252 F.3d 488, 497-98 (1st Cir.

2001).

III. NEGLIGENT MISREPRESENTATION

Against this backdrop, we turn to the law pertaining

to accountants' liability to third parties for negligent

misrepresentation and, in particular, the watershed opinion of

the Massachusetts Supreme Judicial Court (SJC) in Nycal Corp. v.

KPMG Peat Marwick LLP, 688 N.E.2d 1368 (Mass. 1998). We next

examine the decision below and discuss an area of disagreement.

We then offer our views on the meaning, under Massachusetts law,

of the phrase "substantially similar transactions" as that

phrase relates to an accountant's liability to third parties for
2Other possible tests for determining the scope of an

accountant's liability to third parties include the

foreseeability test (imposing broad liability) and the nearprivity test (constricting liability). See Bily v. Arthur Young

& Co., 834 P.2d 745, 752-57 (Cal. 1992) (discussing these

theories).

-9-

negligent misrepresentations. Finally, we apply the discerned

law to the gleaned facts to complete our canvass.

A. The Watershed Case.

Nycal v. KPMG Peat Marwick LLP is the SJC's most

comprehensive effort to plot the borders of an accountant's

liability to third parties for negligent misrepresentations. In

that case, the plaintiffs – purchasers of stock – alleged that

they had relied to their determent on financial statements

prepared for the acquired company by the defendant (a well-known

accounting firm). Nycal, 688 N.E.2d at 1369. After studying

the available options,2 the SJC adopted the Restatement rule

anent the scope of an accountant's liability to a third party

for negligent misrepresentations. Id. at 1370-71 (citing with

approval Restatement (Second) of Torts § 552 (1977)). The SJC's

description of the rule follows:

Section 552 describes the tort of negligent

misrepresentation committed in the process

of supplying information for the guidance of

others as follows: (1) One who, in the

course of his business, profession or

employment, or in any other transaction in

which he has a pecuniary interest, supplies

false information for the guidance of others
-10-

in their business transactions, is subject

to liability for pecuniary loss caused to

them by their justifiable reliance upon the

information, if he fails to exercise

reasonable care or competence in obtaining

or communicating the information.

That liability is [(2)] limited to

loss suffered (a) by the person or one of a

limited group of persons for whose benefit

and guidance he intends to supply the

information or knows that the recipient

intends to supply it; and (b) through

reliance upon it in a transaction that he

intends the information to influence or

knows that the recipient so intends or in a

substantially similar transaction.

Id. at 1371-72 (internal quotation marks omitted).

The SJC recognized that section 552 was not selfelucidating, and that courts had been erratic in interpreting

and applying it. Id. at 1372. This lack of uniformity seemed

most readily apparent in respect to the level of knowledge —

actual or constructive — required on the part of the putative

defendant. The SJC opted to demand actual knowledge. Id. In

so doing, it interpreted section 552 "as limiting the potential

liability of an accountant to noncontractual third parties who

can demonstrate actual knowledge on the part of accountants of

the limited – though unnamed – group of potential third parties

that will rely upon the [accountant's work product], as well as

actual knowledge of the particular financial transaction that

such information is designed to influence." Id. (citations and
-11-

internal quotation marks omitted). The accountant's actual

knowledge, the court added, should be ascertained at the time

the audit report or financial statement is issued. Id. at 1372-

73.

Despite this emphasis on actual knowledge, the SJC

added a caveat. It cautioned that accountants could not avoid

liability by burying their heads in the sand: "the Restatement

standard will not excuse an accountant's 'willful ignorance.'"

Id. at 1373.

B. The Decision Below.

The district court appropriately acknowledged Nycal as

the starting point for its analysis. The fulcrum of the court's

unpublished opinion is its determination that the SJC had not

fully embraced the Restatement rule, but, rather, had rejected

the language of section 552(2)(b) (which extends an accountant's

liability beyond particular transactions that the accountant

knowingly intended to influence to substantially similar

transactions). In reaching this conclusion, the veteran

district judge relied on the fact that the Nycal court, at one

point in its opinion, referred to "actual knowledge of the

particular financial transaction," 688 N.E.2d at 1372, without

including the Restatement's reference to substantially similar

transactions. Having embraced this narrow reading of Nycal, the
3To reach this point in its analysis, the court first found

that the record contained sufficient evidence to create

trialworthy issues as to whether the accountants, at the time

they issued the financial statement, knew that CRS would forward

it to NASI and that NASI would rely on it for some underwriting

purpose.

-12-

judge envisioned that the case at hand hinged on whether the

defendants "knew of the particular financial transaction that

the [financial statement] was designed to influence."3

Discerning no evidence that D&L actually knew, in March of 1996,

of a particular bonding transaction scheduled to occur later

that year, Judge Tauro entered judgment for the defendants.

In effect, then, the district court held that

substantially similar transactions, by definition, could not

reach the level of particularity that Nycal required. NASI

vigorously attacks this holding, and we think that it may read

too much into what might well be an economy of words. After

all, the SJC mentioned the "substantially similar transactions"

variant in its initial recital of the rule, Nycal, 668 N.E.2d at

1372, and we can think of three reasons why the court's omission

of this reference in its reprise may well lack decretory

significance. First, the language and structure of Nycal point

toward outright acceptance of the Restatement rule, uncurtailed.

See, e.g., id. at 1371 (remarking that the Restatement rule

"comports most closely" with the standard of liability
4The SJC quoted this language from First Nat'l Bank of

Commerce v. Monco Agency Inc., 911 F.2d 1053, 1062 (5th Cir.

1990), in connection with a discussion of the level of knowledge

required under the Restatement rule. In Monco Agency, the Fifth

Circuit, applying state law, found that Louisiana followed the

Restatement rule. The court then opined that section 552

imposed an "actual knowledge" requirement. Id. at 1061-62. The

court made clear, however, that such a requirement did not

eliminate liability for substantially similar transactions. See

id. at 1061 (explaining that "the misinformer must know that its

client intends to use the inaccurate information to influence a

particular business transaction, or a 'substantially similar

transaction,' to follow").

-13-

traditionally imposed by the Massachusetts courts in other

professional contexts). Second, Nycal itself did not involve a

dispute about whether transactions were or were not

substantially similar (and, thus, the SJC had no incentive to

discuss that aspect of the Restatement rule in any detail).

Third, the Nycal court's language requiring "actual knowledge of

a particular financial transaction," id. at 1372, just as easily

can be read to incorporate substantially similar transactions as

to exclude them.4

In the end, we need not probe this point too deeply.

The extent to which Massachusetts accepts the Restatement rule

is a matter of state law, and the SJC some day will resolve all

doubt. For now, we assume arguendo, favorably to NASI, that

Massachusetts follows the rule of section 552 of the

Restatement, without reservation. That rule limits an

accountant's liability for negligent misrepresentation to those
5We have located only a single case that explores the reach

of this rule. In that case, an audit had been performed and a

report developed with knowledge that Creditor "A" would rely on

it. Creditor "B" later sued the accounting firm, asserting that

the audit report contained a negligent misrepresentation. The

court refused to impose liability, finding that the

transaction's essential character had changed. ML-Lee Acquis.

Fund, L.P. v. Deloitte & Touche, 463 S.E.2d 618, 628-29 (S.C.

Ct. App. 1995), rev'd in part on other grounds, 489 S.E.2d 470

(S.C. 1997).

-14-

third parties who the accountant actually knows will receive the

information, and then, only for transactions that are the same

as, or substantially similar to, the ones which the accountant

actually knows will be influenced by the supplied information.

In other words, an accountant remains potentially liable in

situations in which he actually knows that a third-party

recipient of his information will rely on that information in

the course of a specific transaction, even though the

transaction itself does not transpire, as long as it is

supplanted by a substantially similar transaction.

C. Defining Substantially Similar Transactions.

Although substantially similar transactions can serve

as a basis for an accountant's liability to a third party under

the Restatement rule, the dimensions of that doctrine remain in

doubt.5 Our interest, of course, is in how the Massachusetts

courts would define the term — but neither the SJC nor the

Massachusetts Appeals Court has addressed this issue.
-15-

The Restatement does not attempt to define the phrase

"substantially similar transactions." Nevertheless, the

commentary offers some insight into what is meant by the term.

Thus, when a corporation seeking a bank loan asks an accountant

to audit the books and prepare a report for the prospective

lender, liability for negligence will attach even though the

corporation delays for a month in obtaining the loan. See

Restatement (Second) of Torts § 552 cmt. j. The transaction,

though later in time, remains substantially similar because its

"essential character" – the amount and terms of the credit – has

not changed. Id. So too if the amount of the anticipated loan

varies slightly, the ensuing transaction nonetheless will remain

substantially similar; slight variances do not affect a

transaction's essential character. Id. If, however, after the

accountant's report is delivered the corporation seeks and

receives a much larger loan, the transactions will no longer be

substantially similar and the accountant will not be liable to

the bank for a careless misstatement. Id.

In the last analysis, "[t]he question [is] one of the

extent of the departure that the maker of the representation

understands is to be expected." Id. Minor deviations are to be

anticipated in complex business transactions, and such

deviations ordinarily do not allow the misinformer to escape
-16-

liability to a known third party. If the departure is major,

however, a different result obtains; the transaction actually

consummated cannot then be regarded as essentially the same as

the transaction originally contemplated (and, therefore, cannot

be regarded as substantially similar).

Quite plainly, this definition is fact-sensitive and

requires case-by-case development. We think that, under it, an

accountant's liability for substantially similar transactions

must be determined in two steps. First, the rule implicitly

recognizes that the risk perceived by the accountant at the time

of the engagement cabins the extent of the duty that he owes to

known third parties. Cf. Rusch Factors, Inc. v. Levin, 284 F.

Supp. 85, 91 (D.R.I. 1968) (advocating this proposition prior to

promulgation of the final version of the Restatement rule); Ryan

v. Kanne, 170 N.W.2d 395, 401-02 (Iowa 1969) (same; citing draft

version of the Restatement). Thus, an inquiring court initially

must consider, from the preparer's standpoint, what risks he

reasonably perceived he was undertaking when he delivered the

challenged report or financial statement.

Second, the court must undertake an objective

comparison between the transaction of which the accountant had

actual knowledge and the transaction that in fact occurred.

This comparison cannot be hypertechnical, but, rather, must be
-17-

conducted in light of "[t]he ordinary practices and attitudes of

the business world." Restatement (Second) of Torts § 552 cmt.

j. The goal of this inquiry is to determine whether the two

transactions share essentially the same character. If so, the

actual transaction is substantially similar to the contemplated

transaction (and, therefore, liability-inducing). Elsewise, the

third party has no recourse against the accountant for negligent

misrepresentation.

D. The Merits.

With these guideposts in place, we turn to the case at

hand. To recapitulate, the district court granted summary

judgment for the defendants because it found insufficient

evidence to show that they had actual knowledge of the critical

transactions (i.e., the issuance of several bonds on which CRS

eventually defaulted). In so holding, however, the court

employed a "same transaction" standard, to the exclusion of

substantially similar transactions. We now employ the more

inclusive standard (assuming, albeit without deciding, that the

SJC would adopt it in an appropriate case).

The Restatement rule has six elements. A finding of

liability requires (1) inaccurate information, (2) negligently

supplied, (3) in the course of an accountant's professional

endeavors, (4) to a third person or limited group of third
6On these five elements, NASI has proffered evidence aimed

at showing that the notes to the financial statement contained

misinformation about whether Canty remained the sole stockholder

of CRS; and that D&L, which knew the true facts, negligently

prepared and released the misleading financial statement to CRS

in the ordinary course of D&L's business, knowing that CRS

planned to submit it to NASI (and intending to influence NASI's

consideration of the status of the bonds outstanding on ongoing

projects). NASI also proffered some evidence tending to show

-18-

persons whom the accountant actually intends or knows will

receive the information, (5) for a transaction that the

accountant actually intends to influence (or for a substantially

similar transaction), (6) with the result that the third party

justifiably relies on such misinformation to his detriment. See

Nycal, 688 N.E.2d at 1371-72. The third party has the burden of

proving each of these elements. Consequently, he must create a

trialworthy issue on all six in order to avoid the entry of

summary judgment. See McIntosh v. Antonino, 71 F.3d 29, 33 (1st

Cir. 1995) (discussing the burden of production that devolves

upon a nonmovant who bears the ultimate burden of persuasion on

an issue underlying a summary judgment motion). Creating such

an issue necessitates the production of "specific facts, in

suitable evidentiary form." Id. (citation and internal

quotation marks omitted).

Assuming, for argument's sake, that the evidence,

viewed in the light most favorable to NASI, suffices to limn

genuine issues of material fact on five of the six elements,6 the
that it relied on the misinformation in writing the 1996 bonds

(although this issue, in particular, is hotly disputed).

-19-

question reduces to whether NASI's issuance, in 1996, of the

particular bonds upon which CRS defaulted constituted

transactions that D&L actually sought to influence, or,

alternatively, substantially similar transactions. NASI would

have us answer this question affirmatively for three reasons.

We examine these reasons separately.

First, NASI argues that the bonds which it issued in

1996 were part of a regular "bonding program" and that D&L

prepared the financial statement with this program in mind. To

buttress this argument, NASI describes its relationship with CRS

as common in the industry, explaining that sureties typically

"prequalify" contractors for underwriting purposes, establishing

maximum limits on both individual and aggregate bonds. Such

bonding programs, NASI tells us, usually stay in place for a

year at a time.

While this trade usage might be conventional – NASI

neglected to offer any evidence of trade usage below – the

proper focus is on the accountant's actual knowledge and intent

to influence. See Nycal, 688 N.E.2d at 1372; Spencer v. Doyle,

733 N.E.2d 1082, 1087 (Mass. App. Ct. 2000). Regardless of how

NASI perceived the situation, the critical issue is what the
-20-

defendants actually knew, when they released the financial

statement, about NASI's intent to use the statement in deciding

whether to maintain a bonding program which involved writing new

bonds for CRS in 1996. See Nycal, 688 N.E.2d at 1372-73. The

evidence here, even when viewed in a light favorable to NASI,

does not support a conclusion that the defendants intended to

undertake the risk of a full year's worth of bonds.

To establish the defendants' actual knowledge and

intent to influence, NASI relies most heavily on Cote's

deposition. Cote testified in substance that once he and his

partners had acquired the stock of CRS, he met with Lapalme to

discuss the preparation of the 1995 financial statement. At

that time, he informed Lapalme that CRS's new owners planned to

use the financial statement to meet the corporation's

obligations for "ongoing" bonds (which he described as "projects

that were currently being worked on by [CRS] for which bonds had

been issued"). Cote specifically disclaimed having told Lapalme

that the financial statement would be used to obtain future

bonds, and NASI points to no other hard evidence to fill this

gap.

Taken at face value, Cote's testimony does not support

a conclusion that the defendants knowingly undertook the

substantial risks inherent in the issuance of future bonds. To
-21-

the contrary, an objectively reasonable accountant in Lapalme's

position doubtless would have thought, based on Cote's request,

that he was subjecting his firm to possible liability for NASI's

inventory of bonds previously issued (those that related to

CRS's "ongoing" construction contracts), not for NASI's forwardlooking bonding program. Since no reasonable jury could have

concluded otherwise, NASI failed to show facts sufficient to

support its "bonding program" hypothesis.

If more were needed – and we doubt that it is – the

surrounding circumstances suggest how improbable it is that D&L

would have been willing to undertake liability for future bonds.

Lapalme was keenly aware that the preparation of the 1995

financial statement was likely to be D&L's last engagement for

CRS. Cote testified that he and his partners had begun looking

for a new accountant by the time that D&L completed its work on

the 1995 financial statement. This was to be expected: D&L had

been retained to handle the CRS account by the former owner,

Canty, and the purchase-and-sale agreement obligated the new

owners to retain D&L only until the firm had completed the tax

returns and other financials necessary to close out calendar

year 1995. It strains credulity to believe that an experienced

C.P.A. would undertake liability for indeterminate amounts of
7This and subsequent examples are merely our best

predictions, based on the sparse case law now available, as to

how the "substantially similar transactions" rubric will unfold

in specific situations. The examples are subject to

reconsideration if actual cases presenting the same facts arise

or if further enlightenment emerges from the Massachusetts

courts.

-22-

bonds not yet written when he had no reasonable anticipation of

working for the principal in the future.

NASI next contends that the defaulted bonds represented

transactions which were substantially similar to those that the

defendants intended to influence. Here, however, as we shortly

will show, the 1996 bond transactions plainly did not share the

essential character of the earlier transactions about which the

defendants knew (and which they intended to influence).

Accordingly, the two sets of transactions cannot be considered

substantially similar.

To be sure, determinations of this type involve matters

of degree. If, for example, D&L had agreed to release the 1995

financial statement in anticipation of allowing NASI to review

it before issuing a $500,000 bond for a specific future project,

and NASI thereafter issued a bond for that project in an amount

that varied by, say, $50,000, D&L would be liable to NASI for

any loss occasioned by a negligent misrepresentation.7 See

Restatement (Second) Torts § 552 cmt. j. Similarly, if D&L had

agreed to provide the 1995 financial statement in anticipation
-23-

of allowing NASI to review it before bonding a project that was

slated to start on May 1, but the project did not get underway

until June 15, D&L would still be liable. Id. In each

instance, the key is the accounting firm's actual knowledge of

the surety's intention to rely on the financial statement for a

specific purpose — deciding whether to issue a bond in a known

amount for a known project. The firm thus could anticipate its

likely exposure from attempting to influence the surety's

decision, and the imposition of liability for negligence should

not be defeated by modest variances that the firm, given the way

in which business transactions typically develop, reasonably

could have anticipated. See id.

In this context, there is no scientific formula for

ascertaining substantial similarity. Even if the change

involves a new transaction, rather than merely a modification of

the earlier (known) transaction, the accounting firm might still

be held liable if the identity of the third party is unchanged,

the type of transaction pretty much the same, and the firm's

exposure relatively constant. Imagine, for example, that D&L

agreed to provide the financial statement in anticipation that

NASI would review it in deciding whether to write a $500,000

bond referable to a specific roofing contract that CRS hoped to

secure. Imagine, too, that the project fell through, but CRS
-24-

instead obtained a different, roughly comparable roofing

contract, likewise requiring a $500,000 bond, and NASI, relying

on the financial statement, provided the bond. In that

hypothetical situation, D&L likely would be liable to the surety

for misinformation. See id. cmt. j, illus. 15.

There is an obvious difference between these examples

and the case at hand. The examples presume that the accountants

knew the general nature of the risk they were taking and the

approximate dollar amount of their potential liability. In this

case, however, D&L accepted potential liability only for ongoing

work — known projects in various stages of completion — but NASI

seeks to hold the firm liable for unknown future projects not

yet begun (or even bid) when the financial statement was

delivered. The increased degree of risk is patent. By like

token, D&L accepted potential liability only for bonds

previously issued — bonds with fixed, easily ascertainable

dollar limits — but NASI seeks to hold D&L liable for bonds

which, at the relevant time, were not yet issued (and which,

therefore, had no monetary limit). Those bonds would be written

for whatever sums the contract documents might require. Once

again, the increased degree of risk is patent. Consequently,

the liability that NASI wishes us to impose on the defendants is

well beyond the outermost frontier of Massachusetts law. It is
-25-

not liability for transactions substantially similar to the ones

which D&L knowingly undertook to influence, but for new

transactions that differ in their essential character and entail

a new, unanticipated level of risk.

That ends this aspect of the matter. Without some

evidence that the defendants knew that they were undertaking

additional, open-ended liability with respect to future bonds by

releasing the financial statement, NASI's second argument

founders. Simply because transactions are of the same general

nature (e.g., "bonds") is not enough to render them

substantially similar for purposes of the Restatement rule. Any

other conclusion would make a mockery of a basic premise that

underbraces the Restatement rule: that an acquiescent

accountant is only deemed to accept the risks of specific

transactions that were made known to him in advance (or

substantially similar ones). See Bily v. Arthur Young & Co.,

834 P.2d 745, 769 (Cal. 1992) (holding that an accountant is

liable for negligent misrepresentation to a third party only if

he knowingly supplies the information for the benefit of the

third party, and the information is relied on by the third party

in a transaction previously identified to the accountant, or a

substantially similar transaction).
-26-

In a last-ditch effort to impose liability, NASI lodges

a claim of willful blindness. It asserts that D&L, through

Lapalme, closed its eyes to commercial realities in a struthious

attempt to avoid liability for future transactions. The legal

foundation on which this argument rests is impeccable. See

Nycal, 688 N.E.2d at 1373 ("[T]he Restatement standard will not

excuse an accountant's 'willful ignorance.'"). However, the

record does not lend substance to NASI's allegations.

NASI points to three facts which it claims show willful

blindness. First, it notes that the dollar amount of the bonds

issued for CRS in 1996 was on the same order of magnitude as the

aggregate dollar amount of the bonds underwritten for CRS in

1995. This proves nothing of significance. The defendants were

not made privy to CRS's plans for the future. Without such

knowledge, the past year's experience was not likely to be a

reliable indicator of a future course of dealings (especially

given the changes in CRS's ownership and management). In all

events, there is no evidence that the defendants were informed

either that CRS, as reconstituted, would continue to use NASI as

its principal bonding source or that NASI intended to use the

1995 financial statement as a basis for evaluating the

advisability of issuing future bonds. Absent such forewarning,

knowledge of past practice would be irrelevant in this context.
-27-

NASI next suggests that D&L should have asked the new

owners what types of bonds CRS might need in 1996. The problem

with this suggestion is that D&L was retained to do a

retrospective account of CRS's finances as of December 31, 1995.

Hence, any inquiry into CRS's future plans would have been

gratuitous.

Finally, NASI harps on D&L's practice of asking Canty

how many copies of the financials he would need. NASI argues

that the incidence of multiple copies should have put D&L on

guard. We are at a loss to follow NASI's logic. D&L knew all

along, through Lapalme's conversation with Cote, that CRS would

supply a copy of the 1995 financial statement to NASI. The

relevant question, therefore, was not who received the financial

statement but for what purpose it was tendered.

We need not paint the lily. NASI has failed to

identify any plausible evidence of willful blindness or

otherwise to demonstrate the existence of a genuine issue of

material fact as to the defendants' actual knowledge of a

substantially similar, loss-inducing transaction. Accordingly,

we uphold the district court's entry of summary judgment in the

defendants' favor on the negligent misrepresentation claim. See

Perez, 247 F.3d at 310 (explaining that the court of appeals may
-28-

affirm a summary judgment on any ground made manifest by the

record).

IV. THE CHAPTER 93A CLAIM

NASI originally pleaded a claim, arising out of the

same facts, for deceptive trade practices. See Mass. Gen. Laws

ch. 93A, § 2(a). The district court granted summary judgment

for the defendants on that claim. In its opening brief to this

court, NASI offered no developed challenge to the correctness of

that ruling. In its reply brief, however, NASI attempts to

remedy this omission. Its attempt fails.

There are few principles more securely settled in this

court than the principle which holds that, absent exceptional

circumstances, an appellant cannot raise an argument for the

first time in a reply brief. E.g., Aulson v. Blanchard, 83 F.3d

1, 7 (1st Cir. 1996); Pritzker v. Yari, 42 F.3d 53, 71 n.19 (1st

Cir. 1994); Mesnick v. Gen. Elec. Co., 950 F.2d 816, 829 n.11

(1st Cir. 1991); Sandstrom v. ChemLawn Corp., 904 F.2d 83, 87

(1st Cir. 1990). NASI flagrantly violated that established

principle. At any rate, the belatedly asserted claim is weak

and NASI has cited no exceptional circumstances which might

excuse the claim's omission from its opening brief. Given those

verities, we see no basis for overlooking NASI's procedural

default.
-29-

V. CONCLUSION

We need go no further. This is a novel case, made

easier because it was well presented by able advocates on both

sides. In the end, we are confident that the law is not so

elastic as NASI maintains, and that the core claim asserted here

falls beyond the scope of an accountant's liability to a third

party. Accordingly, we uphold the entry of summary judgment in

the defendants' favor.

Affirmed.