Opinion ID: 880774
Heading Depth: 1
Heading Rank: 3

Heading: The Extent of Professional Duty.

Text: On the professional duty of an accountant, the District Court in this case instructed the jury as follows: It is the duty of an accountant or a partnership of accountants to employ that degree of learning, skill and judgment ordinarily possessed by members of that profession, and to perform any service undertaken as an accountant in the manner a reasonably careful accountant would do under the same or similar circumstances. The failure to perform such duty constitutes negligence. The foregoing instruction was offered to and given by the District Court without objection. It properly states the law and no issue is raised as to the instructions given by the District Court in this case. The legal and factual issues raised by Peat Marwick (a term we use to include both defendants) revolve around the application and outer extent of the duty of the accountants under the circumstances here. To begin with, there is a deep division between the parties as to whether the contract between the Clinic and the accountants was express or implied. The District Court properly instructed the jury that an express contract is one in which the terms are stated in words, and that an implied contract is one the existence and terms of which are manifested by conduct. Section 28-2-103, MCA. The distinction is important. Peat Marwick contends that no express contract existed in this case, but only an implied one, and therefore the extent of professional duty must be determined by conduct. The Clinic contends for an express contract, arguing that the Peat Marwick letters and handwritten notes constitute an express contract which defined professional duties. The special verdict form returned by the jury found only that the defendants did breach an obligation which they owed to the plaintiff under a contract. The issues raised by Peat Marwick on appeal as to whether it breached the duty of accountants in this case follow their concept that only an implied contract existed here and that the scope of their duty to the Clinic is defined by their conduct toward it, and the acceptance of their conduct by the Clinic. Thus Peat Marwick reports in its brief that in October of 1980 its representatives met with the Clinic's executive committee to discuss the buy-in/buy-out problem. The Clinic was dissatisfied with the Peat Marwick contribution at the meeting and as a result determined it would go elsewhere for advice on the problem. The Clinic informed Peat Marwick that it was unhappy with the firm's tax consulting services in general and that its tax consulting role was probably in jeopardy. Thereafter, the Clinic set up its Alternative Buy-in Committee under Dr. Gormley. This committee retained the Los Angeles firm of Pepper Hamilton and Scheetz to explore solutions. Peat Marwick was not invited to compete for or to give advice with respect to this consulting opportunity. The only contribution of Peat Marwick to the eventual Pepper report was that its employee, Mac Stephens, supplied earnings and profits figures to Pepper Hamilton in May 1982 for incorporation in their analysis. The Pepper report came to the Clinic in June 1982. Peat Marwick argues that Dr. Gormley and Bill Nicholson, the Clinic's administrator, went to Peat Marwick and there asked Ronald Haugan for guidance in determining which of the two methods of reorganization contained in the Pepper report would be preferable. They did not then ask Haugan to consider the impact of the proposed reorganization on the issuance of an IRB. Rather, Peat Marwick contends that at the initial meeting Gormley and Nicholson were concerned with the impact of the report on the personal income taxes of each doctor. The Pepper report was outside of Haugan's expertise, and so he referred the report to Don Blackwell, who is a tax partner of Peat Marwick. Blackwell's review of the Pepper report resulted in his letters to the Clinic dated June 25, July 2, and the hand-delivered letter of August 10, all in 1982. These letters on their face show the review by Peat Marwick only of the tax impact of the proposed reorganization of the corporation upon the doctors personally. The Peat Marwick letters were accepted by the Clinic without objection and no contention is made as to their veracity. Thus, it is argued that the conduct of the parties describes the limits of the duty of Peat Marwick to the Clinic. Peat Marwick contends that the evidence shows that the Clinic relied upon persons other than the Peat Marwick defendants as experts on IRB financing. Peat Marwick was given and performed only piecemeal tasks with respect to the reorganization, and had virtually no involvement at all with the bond issue. The major task of the accountants was the review of the Pepper report, and they worked only with the buy-in committee. In the meantime, the Clinic had hired and relied on Pepper Hamilton, the Crowley law firm, the Kieburtz firm, and its own employees, Bill Nicholson and Peggy O'Leary, to deal with the bond financing and particularly to determine capital expenditures. Peat Marwick's expert witness at trial, Ward Junkermeier, testified that the Clinic was crawling with authorities on bond issues and that the Peat Marwick defendants had no occasion to think that they had any responsibility for advising the Clinic with respect to the impact of the reorganization of the proposed IRB. In addition to their limited sphere of duty in the matter, Peat Marwick also contends that an accountant in Blackwell's position has no duty to warn clients of hazards outside the scope of his engagement, unless he knows the hazards exist. Neither Blackwell nor the other Peat Marwick defendants could have been expected to know that the § 331 reorganization constituted a capital expenditure, even if they had known of the $10 million limit on capital expenditures under § 103. In support, Peat Marwick points out the Clinic's administrator, Bill Nicholson, who is a CPA, and its comptroller, Peggy O'Leary, also a CPA, failed to detect that there was any question that the reorganization was a capital expenditure, nor did Gareld Kreig of the Crowley law firm. The arguments of the Clinic on this issue run quite the other way. Dr. Gormley testified that he brought the Pepper report to Haugan for input and that in effect he wanted a second opinion. The Clinic contends for an express contract between the parties, pointing to the sentences in Peat Marwick's letter of June 25, stating, As requested we have reviewed the [Pepper report] for tax and accounting considerations and We will limit our comments herein to those recommendations in which we see accounting or tax implications. The Clinic also points to a handwritten note from Haugan to Blackwell, in referring to Blackwell the Pepper report, wherein Haugan stated that Dr. Gormley wanted Peat Marwick's input later that month, and that the goals of the review were to provide the Clinic with a general reaction to the proposal and suggestions that Peat Marwick might have from the viewpoint of the Billings Clinic, the individual doctors, and the professional corporation standpoint. Again, the letter of Peat Marwick to the Clinic on July 2, 1982, repeated that the accounting firm had reviewed the Pepper report for tax and accounting considerations. Based on the language in the June 25 and July 2 letters, Haugan's note to Blackwell about the goals of the project, and the broad range of topics covered by Blackwell in the June 25 letter, and his handwritten notes, the Clinic's expert witness, Arthur Shenkin, testified that Peat Marwick's duty called for a complete review of everything in the Pepper report that an accountant would be expected to know; that Peat Marwick was negligent in failing to consider things which they should have considered; and that the impact of the reorganization on the impending IRB was something that the Peat Marwick firm should have investigated. The Clinic further argued that the information was available to Blackwell because Peat Marwick's expert in Washington, a Mr. Wiesner, whom Blackwell called in December 1982 as to the effect of the reorganization, was easily available for advice. Moreover the Clinic produced in evidence an in-house Peat Marwick videotape entitled Action Plan for the 1980s. The videotape called on the tax generalists of the firm to identify clients' problems and refer them to the tax specialists of the firm, to provide those services the clients identify and ask for, and to anticipate and identify problems that the client may not even be aware of yet. There was no dispute from the experts of either side as to this standard of care. So, having listed the opposing contentions of the parties, we turn now to determine the issue of the professionals' duty. The factual issues have been decided by a jury. They found a breach of duty by Peat Marwick under a contract existing between it and the Clinic. When the evidence is conflicting, and there is substantial credible evidence supporting the jury's findings, we are precluded from disturbing the factual findings. Jacobsen v. State (1989), 236 Mont. 91, 769 P.2d 694; Palmer by Diacon v. Farmers Insurance Exchange (1988), 233 Mont. 515, 761 P.2d 401; Walls v. Rue (1988), 233 Mont. 236, 759 P.2d 169; and Mountain West Farm Bureau Mutual Insurance Company v. Girton (1985), 215 Mont. 408, 697 P.2d 1362. Moreover, the factual determination by the jury here makes somewhat irrelevant the issue of whether the contract between the parties was express or implied. The statements in Peat Marwick's letters and notes that they were reviewing for tax and accounting considerations, and that one of the goals was a general reaction to the proposal could be considered as express words constituting an express contract. Likewise the same language could be defined as conduct defining their duty under an implied contract. The American Institute of Certified Public Accountants has filed an excellent brief in this case in support of Peat Marwick. As amicus, they too contend that the Peat Marwick defendants here were retained by the Clinic for a limited purpose, to advise as to the tax and accounting considerations of the proposed reorganization, without addressing general business or legal considerations. There was no letter of engagement between the Clinic and Peat Marwick as to their professional responsibility, and they were never asked specifically to evaluate the reorganization in conjunction with the proposed IRB. The Institute points to two decisions which it contends should guide our decision here. In Aetna Finance Company v. Ball (1989), 237 Mont. 535, 774 P.2d 992, we had before us a legal malpractice suit. Aetna, a finance company, appealed from a judgment of a District Court in favor of an attorney where Aetna claimed that the attorney had not fulfilled his duty to Aetna in connection with Aetna's purchase of a security interest in a parcel of real property. The defendant attorney had advised Aetna that it should have two exceptions contained in the title insurance policy removed before closing on an additional loan against the property. The attorney, having been advised by the client that the removal had been done, stated in a post-closing opinion that a valid security interest sufficient to enable Aetna to obtain mortgage title insurance existed. The attorney did not see the title insurance policy issued the same day, which in fact retained the two exceptions. Aetna sued the attorney claiming it had sustained a loss attributable to a professional error of the attorney. The trial court found that the attorney had assumed only limited duties, which were fulfilled by advising the client how to proceed to insure its interests in the property. The District Court also found that the attorney had not undertaken the duty of guaranteeing that the title company would issue appropriate coverage but that this task was the responsibility of Aetna. The trial court found no liability or negligence on the part of the attorney and on appeal we affirmed. We held that the contract terms determining the exact duties agreed to between the attorney and the client were ambiguous, and so we held the trial court could ascertain the intent of the parties from the examination of their conduct. Based on the evidence, we upheld the District Court in that the attorney could not be held liable for the exceptions that appeared in the title insurance policy. The Institute also relies on Gantt v. Boone, Wellford, Clark, Langschmidt and Pemberton (M.D.La. 1983), 559 F. Supp. 1219, 10 affrmd. 742 F.2d 1451 (5th Cir.1984). In that case the federal court refused to impose liability on negligence or breach of contract against an accountant hired by a corporation in connection with the sale of corporate assets that resulted in substantial state capital gains taxes. The court focused on the accountant's testimony as to his understanding of his duty, the amount of his fee, and on specific matters that he was not asked to consider. The court concluded that the accountant had undertaken a limited engagement and that he was not retained for the purpose of rendering tax advice which had been left to the corporation's general counsel. The Gantt court disregarded the testimony of the plaintiff's expert, an accountant who testified that he would have done a number of things differently from the defendant accountant. The court held that any further actions by the accountant would simply have duplicated the effort of the corporation's general counsel and were not in the sphere of duty of the accountant in that case. The Institute cites other cases of equal import, but we distinguish the two principal cases and the other cases from the case at bar. In the two cases cited, the trier of fact determined the scope of the professional's duty; that is also true in the case at bar. Moreover, in spite of the restricted view of the accountants' duty that was taken by the Institute with respect to Peat Marwick's participation in this case, Peat Marwick was not completely isolated from the IRB financing project. The Pepper report itself contained a reference to the fact that the Clinic would probably build with IRB financing, and this report was fully available to Peat Marwick. In addition, during the summer of 1982, Peat Marwick performed audit work in connection with the reorganization, and knew from the minutes of The Yellowstone Realty, as well as the records of The Yellowstone Company that the reorganization was on-going, and the construction was planned. The audit was for the purpose of completing the reorganization. We uphold the determination of the jury that Peat Marwick breached its duty with respect to the Clinic.