Opinion ID: 2589397
Heading Depth: 2
Heading Rank: 1

Heading: Credit Alliance is Satisfied Here.

Text: The criteria for accountant liability to a noncontractual third party are well established. Such liability, as the majority repeatedly reminds us, is closely circumscribed; but, in our decisions since White v Guarente ( supra ), we have emphasized that the court has [not] erected a citadel of privity for negligent misrepresentation suits ( Ossining Union Free School Dist. v Anderson LaRocca Anderson , 73 N.Y.2d 417, 424). Instead, the Court has adopted a description of the circumstances which exist when liability may be established, i.e., a relationship [between the parties] so close as to approach that of privity ( id. , at 424). Until Credit Alliance , the tests of when the relationship sufficiently approaches privity were articulated in various ways ( id. , at 425). But, as we stated in Ossining : Most recently, in Credit Alliance , we spelled out the following criteria for liability: (1) awareness that the reports were to be used for a particular purpose or purposes; (2) reliance by a known party or parties in furtherance of that purpose; and (3) some conduct by the defendants linking them to the party or parties and evincing defendant's understanding of their reliance ( Credit Alliance Corp. v Andersen & Co. , 65 NY2d, at 551) ( id. , at 425 [emphasis added]). The standardized definition of privity articulated by the three Credit Alliance requirements thus replaced the various tests previously applied and imparted uniformity to the area of accountant liability. There is no dispute that the first two criteria of Credit Alliance are satisfied. There is ample proof that well before the September 14 conversation between Seiden and Freeman, Main Hurdman knew that the audit was to be used for the credit negotiations and that SPBC would rely on its audit report and opinion. The minutes of the 1983 and 1984 Top Brass director's meetings authorizing credit negotiations, the audit planning memo, the pencil draft, and the tentative draft of the audit report all indicate that Main Hurdman had this knowledge from the outset of the audit. The only issue is whether, for purposes of avoiding summary judgment, the record contains enough evidence of linking conduct to satisfy the third criterion of Credit Alliance . As will be shown, there is ample evidence to create a factual issue on this third criterion and, hence, the Credit Alliance test for a relationship sufficiently approaching privity is satisfied, at least for the purposes of avoiding summary judgment. The linking conduct prerequisite as framed in Credit Alliance is that there be some showing of conduct or contacts between the accountants and the relying third party  which evinces the accountants' understanding of that party['s]    reliance (65 NY2d, at 551, supra [emphasis added]). Since Credit Alliance , no New York decision, including today's opinion, has attempted to explain what is meant by conduct evincing an accountant's understanding of a third party's reliance. [8] The language of the Credit Alliance opinion suggests that what is called for is an evidentiary showing of some communication or contacts demonstrating the accountant's awareness of the third party's reliance. Indeed, this is how other courts have read Credit Alliance . As one court put it, the requirement is that the accountants manifest conduct underscoring their understanding of a particular nonclient's reliance upon the work product ( First Natl. Bank of Commerce v Monco Agency , 911 F.2d 1053, 1059 [5th Cir]). Another court has said that touchstone of the inquiry is not    formal direct communication, but rather some link of the `defendant to plaintiff which evinces defendant's understanding of plaintiff's reliance' ( Huang v Sentinel Govt. Sec. , 709 F Supp 1290, 1298). If, as the language of Credit Alliance indicates, what is required is a demonstration of some conduct evincing or underscoring the accountant's knowledge of the reliance, then it seems self-evident that there is enough here to withstand summary judgment. Of the several incidents of linking conduct, the telephone conversation on September 14, 1984 between Seiden and Freeman is unquestionably the most telling. Seiden's phone call, one that Freeman expected, was placed at the request of Top Brass. What conduct on the part of accountants could more surely link them to their client's prospective lender and evince their understanding of the lender's reliance than a conversation in which the lender informs the accountants of its intended reliance on the client's financial condition as stated in the financial statements then under audit and asks for and receives the accountants' assurances of the statements' accuracy? Despite the Court's efforts to make it seem so, this phone call was not just some last minute stratagem to procure deep pocket surety coverage (majority opn, at 707) for the small cost of a phone call ( id. ). Seiden's call to Freeman was at Top Brass' request. A telephone call between a prospective lender and a prospective borrower's accountants  requested by the borrower for the express purpose of having the accountants assure the lender of the soundness of the client's financial position so as to induce the loan  can hardly be passed off as a cheap stratagem of the lender. But, the September 14 conversation is only a part of the evidence. Other actions by Main Hurdman point unequivocally to its understanding of SPBC's intended reliance on the audit: e.g., Main Hurdman's preparation and circulation of the audit planning memo referring to the previous year's experience and the need for careful attention to delinquent accounts; its receipt and acknowledgment of the Top Brass directors' minutes authorizing the credit negotiations with SPBC; its receipt and consideration of the pencil draft noting the credit negotiations in planning the 1984 audit; and its reference in the subsequent events memo to the SPBC credit negotiations as an item to be considered. Despite the majority's persistent disavowals ( see , majority opn, at 704, 705), all of this is conduct evincing Main Hurdman's understanding  from the very earliest stages of the audit process  of SPBC's intended reliance on the audit and of its specific concern with the adequacy of the doubtful accounts reserve . More conduct should certainly not be needed to evince Main Hurdman's knowledge of SPBC's reliance, but there is more  the contacts in late 1983 between Main Hurdman and SPBC concerning SPBC's unsuccessful credit proposal to Top Brass. Main Hurdman knew that its audit of the first quarter 1984 accounts receivable and bad accounts reserve was central to SPBC's proposal. In his December 1983 conversation with the Main Hurdman auditor-in-charge, Seiden had emphasized his concern with the accounts receivable reserve and had specifically advised Main Hurdman that SPBC would rely on Main Hurdman's audit of Top Brass in making its credit proposal ( see, supra , at 710, n 1). It is not likely that Main Hurdman would have forgotten SPBC's concern with its client's receivables and SPBC's stated intention to rely on their audit when, only a few months later, their client again sought a line of credit from the identical lender, SPBC. In sum, the issue in this case could not be more clearly focused because there is no dispute that SPBC has met the first two parts of the Credit Alliance test. The critical elements of SPBC's reliance on the audit in making its credit decision and Main Hurdman's awareness of that reliance are conceded. If what Credit Alliance requires for the third element is a showing of some additional evidence of conduct evincing or underscoring the conceded fact of Main Hurdman's knowledge of SPBC's reliance, then it seems almost inconceivable that this record could be insufficient to create a triable issue on that third element. But, the Court holds that it is not enough. In granting summary judgment, it has evidently concluded that what Credit Alliance demands is not conduct evincing defendant's knowledge of the plaintiff's reliance but instead a showing of an unmistakable relationship equivalent to that in European Am. Bank & Trust Co. v Strauhs & Kaye (65 N.Y.2d 536, 554), and one of such closeness or intimacy as to satisfy the privity requirements of Glanzer and Ultramares .