Opinion ID: 1225912
Heading Depth: 2
Heading Rank: 1

Heading: the raritan claim

Text: Raritan's complaint states in pertinent part: 4. Defendant Cherry Bekaert was engaged, pursuant to a valid and enforceable contract, to examine the financial statements of Intercontinental Metals Corporation, Intercontinental Metals Trading Corporation and other related companies (collectively hereafter IMC) as of September 30, 1981 and September 30, 1980, in accordance with Generally Accepted Auditing Standards and to express an opinion as to whether or not such financial statements presented fairly the financial position of IMC and the results of its operations and changes in its financial position for the years ending September 30, 1980 and September 30, 1981. Defendant Cherry Bekaert published its Report of Certified Public Accountants, Consolidated Financial Statements, Years ended September 30, 1981 and 1980 on or about January 30, 1982. .... 6. Plaintiff had over a period of years sold hot-rolled carbon wire rod (raw steel) to IMC on open account, relying on information available to plaintiff with respect to the financial condition of IMC. 7. Subsequent to May 6, 1982, IMC placed orders for hot-rolled carbon wire rod (raw steel) with plaintiff in substantial amounts. Plaintiff's inquiry with respect to the current financial position of IMC on or about May 6, 1982 included a report from Dun & Bradstreet, Inc. showing IMC's audited net worth as of September 30, 1981, to be $6,964,475.00. The Dun & Bradstreet, Inc. report made specific reference to defendant Cherry Bekaert's Report of Certified Public Accountants as the source of information contained in its report. 8. In reliance upon information contained in the Dun & Bradstreet, Inc. report, as supplied by defendant Cherry Bekaert's Report of Certified Public Accountants, plaintiff extended credit to IMC in excess of $2,247,844.61. A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint. Sutton v. Duke, 277 N.C. 94, 176 S.E.2d 161 (1970). `[A] complaint should not be dismissed for insufficiency unless it appears to a certainty that plaintiff[s] [are] entitled to no relief under any state of facts which could be proved in support of the claim.' Id. at 103, 176 S.E.2d at 166 (quoting 2A Moore's Federal Practice § 12.08 (2d ed. 1968)). While the concept of notice pleading is liberal in nature, a complaint must nonetheless state enough to give the substantive elements of a legally recognized claim or it may be dismissed under Rule 12(b)(6). Stanback v. Stanback, 297 N.C. 181, 204, 254 S.E.2d 611, 626 (1979). Moreover, if a complaint pleads facts which serve to defeat the claim it should be dismissed. Sutton v. Duke, 277 N.C. at 102, 176 S.E.2d at 166. Raritan alleges that it got the financial information upon which it relied, essentially IMC's net worth, not from the audited statements themselves, but from information contained in Dun & Bradstreet. This allegation, we conclude, defeats Raritan's claim for negligent misrepresentation so as to render it dismissible under Rule 12(b)(6). The tort of negligent misrepresentation occurs when a party justifiably relies to his detriment on information prepared without reasonable care by one who owed the relying party a duty of care. Howell v. Fisher, 49 N.C.App. 488, 272 S.E.2d 19 (1980), disc. rev. denied, 302 N.C. 218, 277 S.E.2d 69 (1981); Davidson and Jones, Inc. v. County of New Hanover, 41 N.C.App. 661, 255 S.E.2d 580, disc. rev. denied, 298 N.C. 295, 259 S.E.2d 911 (1979). We conclude that a party cannot show justifiable reliance on information contained in audited financial statements without showing that he relied upon the actual financial statements themselves to obtain this information. Only one court, to our knowledge, has touched on the question whether a plaintiff must show that he relied upon the actual audited statements prepared by an accountant in order to have a viable claim for the accountant's negligent misrepresentation. The New Jersey Supreme Court seems to require such a showing as essential to the claim. H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 352-53, 461 A.2d 138, 153 (1983). After stating an expansive test for assessing accountants' liability, the Court limited its holding by declaring: The principle that we have adopted applies by its terms only to those foreseeable users who receive the audited statements from the business entity for a proper business purpose to influence a business decision of the user, the audit having been made for that business entity. Thus, for example, an institutional investor or portfolio manager who does not obtain audited statements from the company would not come within the stated principle. Id. We have not found, nor have plaintiffs cited, a case in which the plaintiffs prevailed against an auditing accountant on a negligent misrepresentation claim without demonstrating that they relied upon the accountant's actual audit opinion. Even in cases, such as Rosenblum, in which courts have broadened the scope of those to whom the accountant owes a duty, plaintiffs have been able to show at least that they relied directly on the audited financial statements. See International Mortgage Co. v. John P. Butler Accountancy Corp., 177 Cal.App.3d 806, 223 Cal.Rptr. 218 (1986); Touche Ross v. Commercial Union Ins., 514 So.2d 315 (Miss. 1987); H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 461 A.2d 138 (1983); Citizens State Bank v. Timm, Schmidt & Co., 113 Wis.2d 376, 335 N.W.2d 361 (1983). Our holding that reliance on the audited financial statements is required in these kinds of cases stems in part from an understanding of the audit report. An audit report represents the auditor's opinion of the accuracy of the client's financial statements at a given period of time. See generally R. Gormley, The Law of Accountants and Auditors 1-26 (1981). The financial statements themselves are the representations of management, not the auditor. B. Ferst, Basic Accounting for Lawyers 11 (3d ed. 1975). Isolated statements in the report, particularly the net worth figure, do not meaningfully stand alone; rather, they are interdependent and can be fully understood and justifiably relied on only when considered in the context of the entire report, including any qualifications of the auditor's opinion and any explanatory footnotes included in the statements. Raritan alleges that it relied not upon the audited financial statements as prepared by defendants but upon information contained in the Dun & Bradstreet, Inc. report.... Raritan thus pleads facts which defeat its claim for negligent misrepresentation and render this claim dismissible under Rule 12(b)(6).