Court Opinion

ID: 60236
Source: CourtListenerOpinion
Date Created: 2010-04-26 03:58:25+00
Date Added: 2024-06-11T17:19:54.380171
License: Public Domain

[DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                           FOR THE ELEVENTH CIRCUIT
                           ___________________________            FILED
                                                        U.S. COURT OF APPEALS
                                    No. 07-12557           ELEVENTH CIRCUIT
                          ____________________________        March 25, 2008
                                                            THOMAS K. KAHN
                         D.C. Docket No. 06-01127-CV-CAP-1       CLERK

TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA,
a Connecticut corporation,

                                                                 Plaintiff-Appellant,

                                           versus

REZNICK GROUP, P.C.,
a Maryland professional corporation,
                                                                 Defendant-Appellee.

                             ____________________________

                     Appeal from the United States District Court
                          for the Northern District of Georgia
                          _____________________________

                                     (March 25, 2008)

Before HULL and WILSON, Circuit Judges, and ALBRITTON*, District Judge.

       *
       Honorable W. Harold Albritton, United States District Judge for the Middle District of
Alabama, sitting by designation.
PER CURIAM:

      Appellant Travelers Casualty & Surety Company of America appeals the

district court’s order granting Appellee Reznick Group, P.C.’s Motion to Dismiss

brought pursuant to Fed. R. Civ. P. 12(b)(6) and dismissing Travelers’ complaint

for failure to state a claim, and the district court’s order denying Travelers’ Motion

for Reconsideration, to Alter or Amend Judgment, for Relief from Judgment, or, in

the Alternative, for Leave to File an Amended Complaint.

      This suit involves a claim by Travelers that it suffered loss on a performance

bond it issued after relying on a financial statement prepared by accountant,

Reznick, which proved to be inaccurate, as a result of Reznick’s alleged

negligence.

      The issues before the court on appeal are (1) whether the district court erred

in concluding that Travelers’ complaint failed to state a claim for negligent

misrepresentation, and (2) whether the district court abused its discretion by

refusing to allow Travelers to file an amended complaint.

      The court reviews de novo a district court's granting of a 12(b)(6) motion to

dismiss. Glover v. Liggett Group, Inc., 459 F.3d 1304, 1308 (11th Cir. 2006) (per

curiam). The court reviews for abuse of discretion a district court's order denying

leave to amend a complaint. Florida Evergreen Foliage v. E.I. DuPont De

                                          2
Nemours and Co., 470 F.3d 1036, 1040 (11th Cir. 2006) (per curiam). In this

diversity case we apply the substantive law of Georgia, the state of the forum. See

Provau v. State Farm Mut. Auto. Ins. Co., 772 F.2d 817, 820 (11th Cir. 1985) (per

curiam).

      After reviewing the record and the parties’ appellate briefs, and hearing oral

argument, for the reasons discussed below, we affirm the district court’s judgment.

      In extending liability to professionals, including accountants, for negligence

in supplying information relied on by third parties, Georgia has adopted a “middle

ground” standard between unlimited foreseeability and privity, which is derived

from Restatement (Second) of Torts, § 552 (1977). Badische Corp. v. Caylor, 356
S.E.2d 198, 199-200 & n.2 (Ga. 1987). Under this standard, a professional who

supplies information can be liable for negligence only to a known person, or

limited class of persons, where the professional was also manifestly aware of the

use to which the information was to be put and intended that it be so used. Robert

& Co. Assoc. v. Rhodes-Haverty P’ship, 300 S.E.2d 503, 504 (Ga. 1983);

Badische Corp., 356 S.E.2d at 200. The duty of professionals to third parties is a

relative standard of care which “may be defined only in terms of the use to which

the information will be put, weighed against the magnitude and probability of loss

that might attend that use if the information proves to be incorrect.” Restatement

                                         3
(Second) of Torts, § 552 cmt. a.

      In arguing that it adequately pled a claim of negligent misrepresentation

under Georgia law, Travelers has pointed to a statement of the elements of such a

claim, including that third persons must reasonably rely on information provided

by the professional, as stated in Squish La Fish, Inc. v. Thomco Specialty

Products, Inc., 149 F.3d 1288, 1291 (11th Cir. 1998). Under Georgia law,

however, it is “the purpose for which the report or representation was made,”

which informs the inquiry of the reasonableness of reliance. Robert & Co., 300
S.E.2d at 504. The professional who provides the information relied on must

know the purpose for which the information would be used and intend that

purpose. Id.

      The identification of the purpose for which third parties were alleged to rely

on the information provided by Reznick is contained in paragraph 11 of the

complaint filed by Travelers. Paragraph 11 states that third parties would rely on

Reznick’s audit statement in deciding whether to “extend credit or otherwise

accept liabilities” of PRS Construction, LLC. (Complaint p. 3, ¶ 11). This

statement of purpose includes, and is much broader than, the issuance of

performance bonds referenced elsewhere in the complaint. Paragraph 12 further

states that Reznick was manifestly aware of the use to which the information

                                         4
would be put and intended that use. When these two paragraphs are read together,

they allege that Reznick was manifestly aware that third parties would use the

information Reznick provided in deciding whether to extend credit or otherwise

accept liabilities of PRS Construction, LLC in unspecified amounts.

      The complaint alleges knowledge of such broad purposes that it is

inconsistent with the requirement of Georgia law that the professional’s liability

be limited to loss suffered through reliance on information supplied “in a

transaction [the professional] intends the information to influence or knows that

the recipient so intends or in a substantially similar transaction.” Robert & Co.,
300 S.E.2d at 504 n.1 (quoting Restatement (Second) of Torts § 552). The

allegations of the complaint are not limited to intended or substantially similar

transactions, but include all transactions in which liability of PRS Construction,

LLC is accepted by third parties.

      In addition, the allegations of the complaint parallel the illustration offered

in the Restatement section adopted by Georgia, wherein an accountant would not

be liable to a bank which relies on an audit statement prepared for the accountant’s

client to issue a loan, even though the accountant knows that financial statements

are used in financial transactions and relied on by lenders, investors, and

shareholders, because the accountant is not informed of the intent to use the

                                          5
accountant’s audit to obtain that particular loan. Restatement (Second) of Torts §

552, cmt. h, illus. 10.

      Accordingly, under de novo review, Glover v. Liggett Group, Inc., 459 F.3d
1304, 1308 (11th Cir. 2006), the district court did not err in concluding that the

allegations of the original complaint were insufficient to state a claim of negligent

misrepresentation under Georgia law. See also Bank of N. Ga. v. Reznick Group,

P.C., No. 07-11919, 2008 WL 134118 (11th Cir. Jan. 15, 2008) (unpublished).

      The second issue presented in this appeal is whether the district court

abused its discretion by disallowing Travelers’ proposed amended complaint.

Regardless of the timing of Travelers’ request, the district court need not have

allowed the amendment if it would have been futile because it failed to state a

claim. Daewoo Motor America, Inc. v. General Motors Corp., 459 F.3d 1249,

1260-61 (2006), cert. denied, 127 S. Ct. 2032 (2007).

      The proposed amended complaint added to the allegations of the original

complaint by limiting the scope of the allegations in paragraph 11 to “a limited

class of third parties, such as sureties,” when identifying the parties Reznick is

alleged to have actually known would rely on its audit statement in deciding

whether to accept liabilities of PRS Construction, Inc. (Proposed Amended

Complaint ¶ 11). Also, in an apparent attempt to provide more factual detail,

                                          6
Travelers included allegations about Reznick’s relationships with bonding and

insurance companies and about actions of sureties in general. Id. ¶¶ 12, 13.

      The changes to the complaint proposed by Travelers did not remedy the

pleading deficiencies identified. The new language regarding third parties, which

merely lists sureties as an example of third parties alleged to be known to Reznick,

does not limit the purposes for which the information was to be used by that broad

group of third parties. Furthermore, proposed new paragraphs 12 and 13 are

allegations of Reznick and sureties’ business practices generally, not of Reznick’s

knowledge in this case. There is no allegation in the proposed amended complaint

that at the time it audited non-party PRS Construction, LLC’s financial statements

for the year ending December 31, 2003, Reznick actually knew its audit report

would be used in deciding whether to issue payment and performance bonds for

particular projects or ranges of amounts, and that Reznick intended that its work

be used for that purpose. Accordingly, the district court did not abuse its

discretion in disallowing the amendment, because it would have been futile.

      For the foregoing reasons, we AFFIRM.

                                          7