Court Opinion

ID: 7844187
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:07:15.577984+00
Date Added: 2024-06-11T16:21:04.890982
License: Public Domain

BERDON, J.,
dissenting. This class action brought by the plaintiff, Barbara Waters (plaintiff), is one of twelve class actions wherein damages are sought for thousands of investors as a result of a massive fraud perpetrated against them by the now defunct Colonial Realty Company (Colonial). All twelve class actions, involving dif*837ferent real estate investment limited partnership agreements organized by Colonial, named as a defendant the American Institute of Certified Public Accountants (AICPA), a professional regulatory body that establishes professional and auditing standards (standards) for its member certified public accountants and accounting firms. Also named as defendants were the individual certified public accounting firms that prepared the respective financial projections and forecasts of the expected economic performance (financial forecasts) for the various Colonial investments. These financial forecasts were used to promote the investments and entice investors such as Waters to invest in the limited partnerships organized by Colonial.
The defendant Kostin and Company (Kostin) was the certified public accounting firm that prepared the financial forecasts for Colonial Potomac Limited Partnership, the particular limited partnership in which Waters invested. Kostin, like the other certified public accounting firms employed by Colonial, stated in its financial forecasts that they were prepared in accordance with the standards established by the AICPA. The plaintiff alleges that the individual certified public accounting firms were negligent in preparing the financial forecasts upon which the investors relied because they did not follow the standards established by the AICPA, or in the alternative, if the accounting firms did follow the AICPA’s standards, the AICPA was negligent in promulgating such standards. In each class action, the AICPA moved to strike the counts of the complaint directed against it, arguing that, as a matter of law, it owed no duty to the individual investors. By agreement of the parties in each of the class actions, the decision in the plaintiffs case would apply to the other eleven actions. The trial court subsequently granted the AICPA’s motion to strike. Judgment was rendered in favor of the AICPA in each case and this *838appeal was taken by all of the plaintiffs. In my view, the plaintiffs claim with respect to the AICPA’s alleged negligence is legally sufficient.
I agree with the majority that a legal duty of care is not created merely because an injury is foreseeable, but that “the absence of foreseeability forecloses the existence of a duty of care.” Rather, the pivotal consideration in determining whether a legal duty exists is “ ‘the fundamental policy of the law, as to whether the defendant’s responsibility should extend to such results.’ W. Prosser & W. Keeton, [Torts (5th Ed. 1984)] § 43, p. 281.” RK Constructors, Inc. v. Fusco, 231 Conn. 381, 386, 650 A.2d 153 (1994). Additionally, it is pertinent in this case to note that through their conduct, individuals may voluntarily assume a legal duty. W. Prosser & W. Keeton, supra, § 56, p. 378 (“idea of voluntary assumption of a duty by affirmative conduct runs through a variety of cases . . . [m]ost of the decisions have involved only pecuniary loss”); see also 2 Restatement (Second), Torts § 324 A (1965).1
My analysis begins by clarifying the principal claim against the AICPA, which is set forth in the twenty-sixth count of the plaintiffs complaint.2 Contrary to *839the majority’s characterization, under this count, the plaintiff sought damages against the AICPA only in the alternative. Essentially, the plaintiff alleges that either Kostin or the AICPA acted negligently. Consequently, if the fact finder concludes that Kostin was negligent in preparing its financial forecast because it failed to follow the standards established by the AICPA, then the plaintiff does not seek damages against the AICPA. If, however, the fact finder concludes that Kostin was not negligent in rendering the financial forecasts because it followed the standards of the AICPA, then the plaintiff seeks damages against the AICPA, alleging that it negligently promulgated those standards.
Under the allegations of the plaintiff’s complaint, not only is it foreseeable that an investor would be harmed if the standards employed were negligently promulgated, but public policy requires that the AICPA be held accountable for its conduct. The AICPA, in its statement of purpose, voluntarily assumes “to assist in the maintenance of standards for entry into the profession” and “to develop and improve accounting education.” Indeed, as *840the majority concedes, “the AICPA’s literature recognizes a responsibility on the part of the accounting profession to its clients and to the public . . . .’’In an effort to accomplish those objectives, the AICPA publishes a two volume manual3 that sets forth detailed standards, elaborations and illustrations for conducting an audit that is used to prepare financial statements that are relied upon by investors.4 Although the standards promulgated by the AICPA are employed by member accounting firms, they are clearly established to benefit the clients of the member firms, e.g., the plaintiff and her class. The AICPA requires its members, such as Kostin, to comply with its standards.5 Moreover, the AICPA requires its members to certify on their financial forecasts that, in preparing the document, the AICPA’s standards were complied with.6 Consequently, it is rea*841sonable for an individual who received a financial forecast concerning Colonial’s investments to expect that the standards employed by Kostin in drafting the forecast were properly promulgated. For these reasons, the AICPA has a duty to act reasonably when promulgating standards so as not to mislead innocent investors.
In support of its position, the majority relies on two federal court opinions, of which the authoritative value of each with respect to the issue of duty is highly suspect. In Appalachian Power Co. v. American Institute of Certified Public Accountants, 177 F. Sup. 345 (S.D.N.Y.), aff'd, 268 F.2d 844 (2d Cir.) (per curiam), cert. denied, 361 U.S. 887, 80 S. Ct. 158, 4 L. Ed. 2d 121 (1959), “[o]n a theory of prima facie case of tort,7 [several public utility companies sought] to enjoin [the AICPA] from distributing to its members and others a letter to the effect that [the AICPA] considered] certain accounting procedures improper.” Id., 268 F.2d 845. The United States District Court’s opinion focused on whether the AICPA committed an intentional tort against the plaintiffs, not on whether the AICPA had a duty to investors to promulgate professional standards in a nonnegligent fashion. Id., 177 F. Sup. 349-51. Duty is an element of negligence, but is not an element of an intentional tort. Id.; W. Prosser & W. Keeton, supra, § 30. In affirming the District Court, the Court of Appeals for the Second Circuit stated: “We think the courts may not dictate or control the procedures by which a private organization expresses its honestly held views.” Appalachian Power Co. v. American Institute of Certified Public Accountants, supra, 268 F.2d 845. Although the Court of Appeals stated that “[the AIC-*842PA’s] action involves no breach of duty owed by them to the plaintiff,” the court, in its one page per curium opinion, did not engage in any analysis of the issue that faces us today. Id. Moreover, the Court of Appeals never held that the AICPA did not owe a duty of care to third parties who rely on financial statements drafted pursuant to its standards in the context of an action based upon negligence. Similarly, in Credit Union National Assn., Inc. v. American Institute of Certified Public Accountants, United States District Court, Docket No. 86-C-712-S (W.D. Wis. February 25, 1987), vacated in part on other grounds, 832 F.2d 104 (7th Cir. 1987), the United States District Court was faced with an issue significantly different than the one presently before us. In that case, the plaintiffs challenged the AICPA’s right to circulate an opinion letter to its members regarding the best method by which to classify savings accounts held in a credit union. Although, in passing, the District Court stated that there is not “an evident duty of care on the part of the AICPA toward credit unions which is breached by the publication of the [manual]”; id., 7; the Court of Appeals for the Seventh Circuit viewed the District Court’s opinion narrowly: “The [District Court] thought that the plaintiffs’ claim of injury depended on too many speculative steps.”8 Credit Union National Assn., Inc. v. American Institute of Certified Public Accountants, supra, 832 *843F.2d 106. Because the Court of Appeals affirmed the District Court’s dismissal for lack of a case or controversy, the District Court’s decision is devoid of any discussion of whether the AICPA had a legal duty to act reasonably in issuing its standards. Id., 108.
The AICPA argues before this court that although it does not owe a duty to innocent investors, “[s]uch a conclusion does not . . . leave the [AICPA] unaccountable to anyone.” The AICPA, however, never informs the court to whom it owes that duty. If the AICPA owes a duty to act reasonably when promulgating standards, then that duty must be owed to the innocent investors who act in reliance on financial forecasts that are prepared in accordance with those standards.
The majority’s decision does a great injustice to the victims of Colonial’s fraud. This injustice is clearly demonstrated when the legal standard of care expected of Kostin is applied in this case. Generally, an individual is expected to act as “a reasonable person under the same or similar circumstances” would act. W. Prosser & W. Keeton, supra, § 37, p. 236. In order to determine how a reasonable professional should act in a particular situation, professional standards of conduct may be admitted into evidence. C. Tait & J. LaPlante, Connecticut Evidence (2d Ed. 1988) § 8.7.1 (“if the issue is the proper conduct of a particular business or profession not within the common knowledge of the jury, evidence of the state of the art or the usual practice or custom of others in such field may be proved”). Consequently, Kostin may introduce the AICPA standards into evidence to prove that it acted reasonably, even if those standards may have been negligently promulgated. Monroe v. Hughes, 31 F.3d 772, 774 (9th Cir. 1993) (“an accountant’s good faith compliance with Generally Accepted Accounting Principles and Generally Accepted Auditing Standards discharges the accountant’s professional obligation to act with reasonable *844care”). But, according to the majority in this case, the promulgator of the standards used to exculpate Kostin is free of any accountability. In other words, an accounting firm, such as Kostin, may be shielded from liability because of the AICPA standards, but the AICPA, according to the majority, owes no duty to investors to act in a reasonable manner when issuing professional standards, despite the fact that the public is invited to value and derive confidence from those standards. The logic of such a conclusion eludes me.
The majority asserts that public policy justifies its decision not to recognize a duty on the part of the AICPA to the investing public. If held accountable for their actions, the majority believes that professional associations, such as the AICPA, “might well curtail their laudable and salutary efforts to broaden and strengthen professional standards. ” I do not believe that holding an association accountable for its actions will induce such a harsh result. The public would be better served by simply requiring professional associations who choose to promulgate professional standards and invite the public to value and rely on documents that have been prepared in accordance with those standards, to act in a reasonable manner so as not to injure innocent persons.
It may very well be, and I have no reason to believe otherwise based upon the state of the pleadings and the record before us, that the AICPA has acted in a nonnegligent manner. If that is clearly the case, then the AICPA could be relieved of the litigation, short of a full trial, by simply moving for summary judgment on that ground.
In sum, I am of the opinion that, under the allegations of this complaint, the AICPA owed a duty to the plaintiff and the other individuals who invested in the limited partnerships of Colonial in reliance on the financial *845forecasts drafted pursuant to the AICPA standards because: (1) the AICPA specifically assumed a duty to the investors; (2) the AICPA requires member certified public accounting firms, such as Kostin, to employ its standards when preparing financial forecasts; (3) such standards were promulgated for the benefit of the investors; (4) the AICPA requires members, such as Kostin, to state in their financial forecasts that the forecast was prepared in accordance with AICPA standards; and (5) it was reasonably foreseeable that, if the standards were negligently promulgated, investors, such as the plaintiff, could suffer substantial financial losses.
Accordingly, I respectfully dissent.

 The Restatement (Second) of Torts, § 324 A (1965), provides: “One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if (a) his failure to exercise reasonable care increases the risk of such harm, or (b) he has undertaken to perform a duty owed by the other to the third person, or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking.” (Emphasis added.)
Comment (b) to § 324 A provides: “This Section applies to any undertaking to render services to another, where the actor’s negligent conduct in the manner of performance of his undertaking, or his failure to exercise reasonable care to complete it, results in physical harm to the third person or his things. It applies both to undertakings for consideration, and those which are gratuitous.” (Emphasis added.)

 For the purpose of this dissent, I focus on the twenty-sixth count of the complaint wherein it alleges in part: “562 At all times relevant to this lawsuit, *839[the] defendant Kostin stated that they followed and relied on the technical Standards and/or Guidelines promulgated by or under authorization from AICPA, or the Council [of American Certified Public Accountants], and publicly acclaimed such use and reliance, as suggested by the AICPA standards, by stating that the Colonial Potomac Limited Partnership projections and/or forecasts were compiled in accordance with AICPA Standards, and that such compilation was in conformance with Guidelines for presentation of a compilation established by the AICPA.
“563 If [the] Defendant Kostin properly followed and/or used such AICPA Standards and/or Guidelines, as set forth in the preceding paragraph, then such Standards and/or Guidelines were negligently promulgated and did not reasonably protect [tire] plaintiff.
“564 [The] Defendant AICPA, although it knew or should have known that its Standards and/or Guidelines, if defective as alleged in the preceding paragraph, would create an unreasonable risk of harm to third parties who relied on such Standards and/or Guidelines, permitted its Standards and/or Guidelines to be published, and therefore used by its members, without indicating, and/or requiring its members to indicate, the danger to which the third parties would expose themselves.”

 This manual covers a number of topics: United States auditing standards; attestation standards; accounting and review services; code of professional conduct; bylaws; consulting services; quality control; peer review; tax practice; and personal financing planning.

 Nowhere in the record is it indicated that the AICPA sought to have the plaintiff specify the standards that she claims were negligently promulgated. Consequently, we have before us general allegations that encompass all of the AICPA standards and guidelines.

 In an introductory comment in its manual, the AICPA states that it “requires adherence to the applicable generally accepted auditing standards promulgated by [it]. . . . [M]embers [must] be prepared to justify departures from [the AICPA’s Statements on Auditing Standards]. ” 1 AICPA Professional Standards (1995) p. 51.
Additionally, rule 202 of the Rules of Conduct of the Code of Professional Conduct of the American Institute of Certified Public Accountants provides: “A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council [of American Certified Public Accountants].” 2 AICPA Professional Standards (1995) § 202.1, p. 4571.

 The AICPA manual, under its discussion of the fourth standard of reporting (“[t]he report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed”); 1 AICPA Professional Standards (1995) § 508.04, p. 651; provides that a basic element of an auditor’s standard report is “[a] statement that the audit was conducted in accordance with generally accepted auditing standards.” Id., § 508.08, p. 652.

 “The plaintiffs predicate the validity of their complaint upon the doctrine of ‘prima facie tort.’ . . . [One of the essential elements of this cause of action requires that tjhere must be an intent to injure [the] plaintiff, at least to the extent of infliction of wrongful harm upon [the] plaintiff without just cause or excuse.” (Emphasis in original.) Appalachian Power Co. v. American Institute of Certified Public Accountants, supra, 177 F. Sup. 349.

 The Court of Appeals stated: “There are so many links, each problematic, that it is impossible to trace concrete injury to the AICPA’s decision to classify shares as ‘liabilities’ in the [manual]. We do not know whether accountants will treat shares as liabilities or instead choose to treat them as equity and explain why; we do not know whether either treatment as liabilities or explanations for departures will produce adverse consequences for credit unions and, if so, what the causes of those consequences may be. The plaintiffs want us to resolve a dispute — what is the ‘right’ accounting treatment of shares — without any clear understanding of the consequences either way or any clear link between choice and consequence.” Credit Union National Assn., Inc. v. American Institute of Certified Public Accountants, supra, 832 F. Sup. 107.