Court Opinion

ID: 9583135
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:35:09.703269+00
Date Added: 2024-06-11T13:38:51.686586
License: Public Domain

Judge Wynn
dissenting.
As I do not believe that plaintiff Marcus Brothers Textiles, Inc. (“Marcus”) forecasted sufficient evidence to establish either that Price Waterhouse knew the audit would be provided to Marcus for guidance or that Marcus justifiably relied on the alleged misrepresentations, I would affirm the trial court. Accordingly, I respectfully dissent.
I.
To hold an accountant liable for negligent misrepresentation in audited financial statements, a plaintiff must establish that the accountant owed him or her a duty of care. Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 206, 367 S.E.2d 609, 612 (1988). North Carolina follows the Restatement (Second) of Torts § 552 definition of an accountant’s duty. Id. at 214, 367 S.E.2d at 617. Under that test, the accountant’s duty extends “not only to those with whom the accountant is in privity or near privity, but also to those persons, or classes of persons, whom he knows and intends will rely on his opinion, or whom he knows his client intends will so rely.” Id. This case involves the latter theory of liability. Thus, on the defendants’ motion for summary judgment, Marcus had the burden of bringing forth sufficient evidence that Price Waterhouse knew Piece Goods intended to supply the opinion and audited statements to Marcus for use in deciding whether to extend credit to Piece Goods.
The majority concludes that three items of evidence offered by Marcus were sufficient evidence of knowledge: First, the Price Waterhouse internal memorandum, dated 25 September 1989 and initialed by a partner who worked on the Piece Goods audit, that stated “[Price Waterhouse] has historically reported on the financial statements of [Piece Goods] and . . . vendors and factors are accustomed to receiving [Piece Goods] financial statements . . . Second, Marcus’s inclusion on a list of fifty held checks in the 1992 audit as the sixth largest check; Third, Price Waterhouse’s employment as Piece Goods’s accountant and financial advisor for six years.
*129None of this evidence, individually or collectively, shows that Price Waterhouse had the knowledge required under the standard detailed by our Supreme Court in Raritan. As I have already discussed, there is a limited scope of individuals to whom an accountant owes a duty for negligent misrepresentation in audited financial statements. Raritan, 322 N.C. at 214, 367 S.E.2d at 617. The Raritan Court held that:
[I]n fairness accountants should not be liable in circumstances where they are unaware of the use to which their opinions will be put. Instead, their liability should be commensurate with those persons or classes of persons whom they know will rely on their work.
Id. at 213, 367 S.E.2d at 616. Thus, liability does not extend to situations where an accountant “ ‘merely knows of the ever-present possibility of repetition to anyone, and the possibility of action in reliance upon [the audited financial statements], on the part of anyone to whom it may be repeated.’ ” Restatement (Second) of Torts § 652, cmt. h (1977), quoted in Raritan, 322 N.C. at 214-15, 367 S.E.2d at 617 (alteration in original).
When it adopted the Restatement’s standard, our Supreme Court specifically rejected the alternate “reasonably foreseeable” test, which holds that an accountant owes a duty to all persons whom the accountant could reasonably foresee might obtain and rely on his work. Raritan, 322 N.C. at 211, 367 S.E.2d at 615. It also quoted the following example to illustrate the knowledge required in order for a duty to attach:
A, an independent public accountant, is retained by B Company to conduct an annual audit of the customary scope for the corporation and to furnish his opinion on the corporation’s financial statements. A is not informed of any intended use of the financial statements; but A knows that financial statements, accompanied by an auditor’s opinion, are customarily used in a variety of financial transactions by the corporation and that they may be relied upon by lenders, investors ... and the like .... In fact B Company uses the financial statements and accompanying auditor’s opinion to obtain a loan from X Bank. Because of A’s negligence, he issues an unqualifiedly favorable opinion upon a balance sheet that materially misstates the financial position of B Company and through reliance upon it X Bank suffers pecuniary loss. A is not liable to X Bank.
*130Restatement (Second) of Torts § 552, cmt. h, example 10, quoted in Raritan, 322 N.C. at 215 n.2, 367 S.E.2d at 617 n.2.
None of the evidence relied upon by the majority establishes that Price Waterhouse had more knowledge of Piece Goods’ plans than in the above example. The internal memorandum establishes only that Price Waterhouse knew that outside vendors and creditors received the financial statements it prepared. The fact that the plaintiff was included on a held check list establishes that the plaintiff was one of a fairly sizeable group of creditors. Even when given a plaintiffs due favorable inferences, in my opinion this evidence does not establish any knowledge on the part of Price Waterhouse other than that its financial statements were being used in a variety of financial transactions by Piece Goods, such as the one in which Piece Goods obtained credit from Marcus.
Furthermore, I cannot agree that the length of time that Price Waterhouse served as Piece Goods’s financial advisor and auditor is materially relevant. Such evidence by itself is, obviously, not sufficient to establish knowledge, and in combination with speculative evidence is equally insufficient.
To summarize, the law requires that Marcus show that Price Waterhouse knew that the 1992 audit would be provided to Marcus for Marcus’s use in deciding to extend credit before establishing a duty. In my opinion, the evidence relied on by the majority at best indicates that Price Waterhouse might possibly have been able to infer this fact, but I do not believe that to be sufficient under our Supreme Court’s holding in Raritan. As the evidence forecasted by Marcus is legally insufficient to show that Price Waterhouse knew that Marcus would rely on the work to an extent greater than “the ever-present possibility of repetition,” Restatement (Second) of Torts § 552, cmt. h, quoted in Raritan, 322 N.C. at 214, 367 S.E.2d at 617,1 believe that summary judgment was appropriate and would affirm the trial court. See Best v. Perry, 41 N.C. App. 107, 254 S.E.2d 281 (1979).
II.
I also believe that the plaintiff failed to forecast sufficient evidence of “justifiable reliance.” The lack of evidence on this element provides an alternative basis for affirming the trial court’s grant of summary judgment sufficient in of itself.
It has been said that justifiable reliance is a very fact-intensive question, on which summary judgment is rarely granted. See, e.g., *131Stanford v. Ownes, 46 N.C. App. 388, 395, 265 S.E.2d 617, 622, disc. review denied, 301 N.C. 95, 273 S.E.2d 300 (1980) (“[I]t is generally for the jury to decide whether plaintiff reasonably relied upon representations made by defendant.”). Here, however, I believe that the factual context of this transaction makes it clear that there was an absence of justifiable reliance.
This was a significant transaction by sophisticated parties. Marcus could have, and most likely should have, had an outside party look at the financials before granting close to $300,000 in credit. If Marcus was concerned about items on the financial statement, the time to have voiced those concerns was before it loaned such a large amount. Simply put, I do not think that in a commercial transaction of this scale, saying that you relied upon what the other side told you presents a case of justifiable reliance where the ability to evaluate the relevant information (in this case the financial statements) was apparently equally available to both parties.
As I believe that the evidence forecast by Marcus did not show justifiable reliance, I would affirm the trial court’s grant of summary judgment.