Opinion ID: 598973
Heading Depth: 2
Heading Rank: 1

Heading: New York Law of Privity

Text: 18 We discuss first the October 9, 1990 order. In dismissing Mars-Normel's cross-claim against Gruzen for negligent misrepresentation of the defective plan documents, the district court held that the architect owed no duty of care to Mars-Normel. We agree with the district court that the relationship between the architect and the general contractor was insufficient to impose a duty of care on the architect under New York law, which the parties concede controls. Although we recognize that a number of jurisdictions have adopted the Restatement's lower threshold for a plaintiff to meet when attempting to hold a defendant liable for information negligently supplied for the guidance of others, see Restatement (Second) of Torts § 552 (1977), we are bound by New York law. 19 It is helpful in understanding the law of privity in New York to go back to its beginnings, with Winterbottom v. Wright, 10 Meeson & Welsby 109, 152 Eng.Rep. 402 (Ex.1842). There defendant Wright contracted with the Postmaster-General of England to supply horse-drawn coaches for carrying the mail; another party contracted to supply horses and coachmen, one of whom was plaintiff Winterbottom. When carrying the mail from Hartford to Holyhead, defendant's coach broke down pitching out Winterbottom. Writing for the Court of Exchequer, Lord Abinger termed plaintiff's action for damages for his injuries one of first impression and ruled in favor of defendant Wright because there was no privity of contract between plaintiff and defendant. The English court was of the view that actions upon contracts for damages are to be confined to the parties that entered into them and plaintiff's tort action would--after defendants had done everything to the satisfaction of the Postmaster-General and made whatever adjustments were necessary--permit defendant to rip open these settled accounts between the two contracting parties. Most significant for our purposes was the rationale for the decision: to grant plaintiff a remedy might let in an infinity of actions, that is, if Winterbottom could successfully sue, so could every coach passenger and every passerby along the road. 20 Ninety years later in Ultramares Corp. v. Touche, 255 N.Y. at 170, 174 N.E.2d 441, Chief Judge Cardozo embraced that principle, observing that while in the field of contracts law a beneficiary of a promise usually has a remedy, the remedy is considerably more restricted when such beneficiaries are indeterminate or general. Id. at 180-81, 174 N.E.2d 441. Although Winterbottom v. Wright fathered the doctrine of privity, the assault on this citadel in cases where dangerous instrumentalities were involved, see MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916), had already made substantial inroads. The holding of MacPherson--where the manufacturer of a defective automobile was held liable for injuries sustained by one who purchased it regardless of the lack of privity--rejected the doctrine of privity when it was applied to the same kind of facts as those that had earlier denied Winterbottom any right to recover. 21 Yet, to be held liable for information negligently furnished New York required that there be privity of contract or a relationship closely approaching it, as illustrated by Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922) (Cardozo, J.). Glanzer purchased beans from Beck, who hired the defendant Shepard, a public weigher, to certify that the agreed upon quantity of beans was delivered. Plaintiff Glanzer was given a copy of defendant Shepard's certification by the seller Beck. When the weight of the beans was found deficient, Shepard was held liable to plaintiff for negligence because the aim of the certification was for Glanzer's use, and though privity was lacking between Glanzer and Shepard, their relationship was so close as to create liability. Id. at 239, 241, 135 N.E. 275. 22 In Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 493 N.Y.S.2d 435, 483 N.E.2d 110 (1985), the New York Court of Appeals reiterated the views expressed by Chief Judge Cardozo in Ultramares Corp. v. Touche, stating that in order for an accountant to be held liable in negligence to noncontractual parties who rely to their detriment on inaccurate financial reports, there must exist a relationship  'so close as to approach that of privity.'  Id. at 546, 493 N.Y.S.2d 435, 483 N.E.2d 110 (quoting Ultramares, 255 N.Y. at 182-83, 174 N.E.2d 441). 23 (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. 24 Id. 65 N.Y.2d at 551, 493 N.Y.S.2d 435, 483 N.E.2d 110. While recognizing that these criteria permit some flexibility in the application of the doctrine of privity to accountants' liability, id., the court made clear that it did not intend to depart from its prior decisions requiring the practical equivalent of privity. Id. at 554, 493 N.Y.S.2d 435, 483 N.E.2d 110. This linking conduct standard includes a somewhat wider group of potential plaintiffs to whom a defendant may be liable than does the end and aim of the transaction standard set forth in Glanzer. 25 In Widett v. United States Fidelity & Guar. Co., 815 F.2d 885 (2d Cir.1987), we affirmed the dismissal of a negligence action against an architect where no privity of contract existed, based in part on our belief that the New York Court of Appeals did not intend to make further inroads on the slightly modified privity requirement of Credit Alliance Corp. to the architectural profession. We relied on four cases where the New York courts had dismissed subcontractor claims against architects with whom the subcontractors were not in privity. See id. at 887. Yet, as recognized in a later case, Widett held out the possibility that an architect could be liable to a subcontractor--in the absence of privity--if there was direct communication, a client relationship, or other special circumstances linking them. See Morse/Diesel, Inc. v. Trinity Indus., Inc., 859 F.2d 242, 247 n. 5 (2d Cir.1988). That is to say, in some circumstances the relationship may be sufficiently close as to be virtually indistinguishable from contractual privity. 26 Subsequent to these decisions, the New York Court of Appeals extended its privity doctrine to defendants other than accountants who fall within the narrow circumstances we have delineated. Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417, 424, 541 N.Y.S.2d 335, 539 N.E.2d 91 (1989). It reaffirmed that in negligent misrepresentation cases the rule continues to be that such a cause of action requires that the underlying relationship between the parties be one of contract or the bond between them so close as to be the functional equivalent of contractual privity. Id. at 419, 541 N.Y.S.2d 335, 539 N.E.2d 91. In Ossining, the defendant engineers had been retained by a school district's architect to evaluate the structural soundness of one of the school district's buildings. The New York court found the functional equivalent of privity to exist where the engineers allegedly undertook their work in the knowledge that it was for the school district alone, id. at 425, 541 N.Y.S.2d 335, 539 N.E.2d 91, and rendered their reports with the objective of thereby shaping this plaintiff's conduct. Id. at 426, 541 N.Y.S.2d 335, 539 N.E.2d 91. The engineers sent a bill directly to the school district, and in seeking compensation wrote that we were hired by [the school district]. Id. In addition, the engineers allegedly had direct contact with the school district. Id. 27 In the cases following Ossining, lower New York courts recognized that [t]he ambit of duty created by privity and relationships so close as to approach that of privity is narrowly defined in this State. Prudential-Bache Sec., Inc. v. Resnick Water St. Dev. Co., 161 A.D.2d 456, 457, 555 N.Y.S.2d 367 (1st Dep't 1990). The state courts adhering to the notion of privity have dismissed claims against architects and engineers in the absence of a relationship that could be construed as the functional equivalent of privity. See, e.g., id.; Briar Contracting Corp. v. City of New York, 156 A.D.2d 628, 630, 550 N.Y.S.2d 717 (2d Dep't 1989). Recently, in Security Pacific Business Credit, Inc. v. Peat Marwick Main & Co., 79 N.Y.2d 695, 707-08, 586 N.Y.S.2d 87, 597 N.E.2d 1080 (1992), the Court of Appeals reaffirmed its commitment to the limiting of liability principles set forth in Ultramares and Credit Alliance.