Opinion ID: 715365
Heading Depth: 2
Heading Rank: 2

Heading: Summary Judgment on Schneider's General Negligence Claim.

Text: 9 A grant of summary judgment is reviewed de novo. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Id. at 441. 10 Schneider's general negligence claim against AA & Co. is governed by the California Supreme Court's decision in Bily v. Arthur Young & Co., 3 Cal.4th 370 (1992). Under Bily, an auditor's liability for general negligence in the conduct of an audit of its client's financial statements is confined to the client, i.e., the person who contracts for or engages the audit services. Other persons may not recover on a pure negligence theory. Id. at 406. 11 It is undisputed that Schneider was never a client of AA & Co.'s. Schneider was not mentioned in the audit contract between Merit and AA & Co., nor was he an intended recipient of the audit report, which was addressed exclusively to Merit's Board. 12 Schneider correctly argues that the Bily court acknowledges an additional class of persons who may be the practical and legal equivalent of 'clients'  for purposes of a general negligence claim against an auditor. 3 Cal.4th at 406 n. 16. However, by its own terms, the Bily decision restricts this class of potential plaintiffs to third parties who are expressly identified in the audit engagement contract. Id. (It is possible the audit engagement contract might expressly identify a particular third party or parties so as to make them express third party beneficiaries of the contract. Third party beneficiaries may under appropriate circumstances possess the rights of parties to the contract.). 13 Because Schneider was neither a client, nor an expressly identified third-party beneficiary of the audit contract between AA & Co. and Merit, we conclude that AA & Co. owed no duty to him. Thus, the district court's grant of summary judgment in favor of AA & Co. on Schneider's general negligence claim was proper under Bily. 14