Court Opinion

ID: 3710695
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:45:38.586609+00
Date Added: 2024-06-11T15:43:27.093125
License: Public Domain

Being unable to concur in the conclusions of my colleagues, I must respectfully dissent.
Plaintiff in its complaint alleges to the effect that defendants, as state examiners, negligently performed their statutory duties with respect to audit periods prior to June 1, 1972, which if properly made would have revealed defalcations on the part of defendants' clerk-auditor. The complaint further alleges that, as a result of this negligence, further defalcations on the part of plaintiff's clerk-auditor occurred, resulting in a shortage of funds in the amount of $249,151.07 and a loss of some $244,151.00, the difference having been recovered.
Although R. C. 733.12 places a responsibility upon a city auditor to examine the accounts of every department of the city annually, the officer herein involved was the auditor, and his accounts are audited only by the state examiner pursuant to R. C. 117.09, which provides: *Page 103 
"The bureau of inspection and supervision of public offices shall examine each public office * * * at least once every two years * * *. On examination, inquiry shall be made into the methods, accuracy, and legality of the accounts, records, files, and reports of the office, whether the laws, ordinances, and orders pertaining to the office have been observed, and whether the requirements of the bureau have been complied with. * * *"
Pursuant to that statute, the Bureau of Inspection and Supervision of Public Offices performs the same functions as would a public accountant engaged to audit the accounts of a public officer. The liability of a private accountant so engaged for a failure to discover a defalcation by employees is well stated in 1 American Jurisprudence 2d 366, Accountants, Section 17, as follows:
"An accountant is not an insurer of the effectiveness of his audit to discover the defalcations or frauds of employees but he may be found liable for fraudulent or negligent failure to discover such defalcations because of lack of compliance with proper accounting procedure and accepted accounting practices or by his contract in the light of the circumstances of the particular case. Liability for negligence is limited, however, to such losses as were the proximate result of the accountant's breach of duty, and the employer may be precluded from recovery because of his own negligence when it has contributed to the accountant's failure to perform his contract and to report the truth."
See also Annotation, 54 A. L. R. 2d 324.
In waiving the state's immunity from liability R. C. 2743.02
provides that that liability shall be determined "in accordance with the same rules of law applicable to suits between private parties." Had a private accountant, rather than the Bureau of Inspection and Supervision of Public Officers, performed the audits in question, plaintiff's complaint would state a claim for relief.
Defendants rely upon prior decisions of this court, such asSmith v. Wait (1975), 46 Ohio App.2d 281, and Shelton v.Indus. Comm. (1976), 51 Ohio App.2d 125, in support of *Page 104 
their contention that plaintiff's complaint does not state a claim for relief. Each of these cases, however, turned upon the issue of whether or not the state owed a duty to the particular claimants which it breached. In Shelton, Judge McCormac stated at page 130:
"The crucial language to be interpreted is liability in accordance with the same rules of law applicable to suits between private parties. Private parties are not liable for injuries to another based on negligence unless they have breached a duty owed to that person. Stamper v. Parr-Ruckman Motor Sales (1971),25 Ohio St.2d 1. Since the requirement of a duty owed to plaintiff is one of the rules of law applicable to suits between private parties, it is also applicable to suits against the state. The Court of Claims Act does not create new duties, it only provides a remedy for existing duties where the state was previously immune from suit and a private party under similar circumstances would have been liable."
He went on to state, at page 131:
"Statutes requiring state agencies to inspect and enforce safety standards were enacted to protect the public generally against unsafe conditions. They were not intended, nor should they be so construed, to create a duty toward any particular person."
Similarly, in Smith, this court stated at page 286:
"Registration of securities by the state in no way makes the state an insurer or guarantor of the securities so registered, nor does registration constitute a warranty of the securities in any respect. Likewise, registration by the state does not constitute a representation to the public at large, much less to a trustee of the issuer of the securities, that the securities are safe to buy, are good investments, or are not fraudulently issued. No one has any right to rely upon the state's registration of securities as an in-indication that there is no fraud connected with their issuance."
In a companion case to Smith, this court in Devoe v. State
(1975), 48 Ohio App.2d 311, pointed out that R. C. 1707.40
specifically provides that the laws pertaining to the *Page 105 
registration of securites create no new civil liabilities, and we amplified the statement in Devoe, at page 318, stating:
"Although the state attempts to protect the general public, qualifications of the securities by registration with the division of securities does not constitute a representation by the state to the general public that the securities are safe to buy."
This case, however, is distinguishable from Smith, Devoe, andShelton. Where the state undertakes to provide a service to someone, and negligently performs that service, the state is liable upon the same basis as a private person undertaking to perform the same type of service. The fact that the decision to provide the service is made by statute does not limit the state's responsibility, inasmuch as any service performed by the state necessarily must be mandated, or at least authorized, by statute This case involves one who is a direct beneficiary of the services — one for whom the service itself is performed — unlike Smith, Devoe, and Shelton, which involved claims of third parties, not direct beneficiaries of a service provided by the state. Even a private accountant performing similar services would not be liable to third parties in the absence of fraud or privity. See Beardeley v. Ernst (1934), 47 Ohio App. 241, and Annotation, 46 A. L. R. 3d 979.
As we have previously held, liability of the state must be based upon a breach of duty owed by the state to the claimant. Such a duty may arise pursuant to the common law or pursuant to statute or a combination thereof. Although the relationship between plaintiff and a private accountant who might be employed to perform the same services would be predicated upon contract, the relationship between plaintiff and the Bureau of Inspection is mandated by statute. The fact that the relationship is mandated by statute, rather than by contract, does not change the nature of the relationship, nor require the exercise of any less care on the part of defendants in performing the services for plaintiff as mandated by statute.
Here, plaintiff alleges that nearly a quarter of a million dollars of public money has been lost due to the negligence *Page 106 
of defendants. Although liability must be clear before monies should be taken from the public treasury, here the public treasury has been depleted to the extent of a quarter of a million dollars, albeit the public treasury of plaintiff, rather than that of the state. The issue herein is not whether or not the public treasury will be emptied but, rather, which public treasury should bear the loss. This can only be determined by a trial upon the merits. However, plaintiff states a claim for relief and is entitled to an opportunity to prove that the loss should be borne by the state, rather than plaintiff, because of the alleged negligence on the part of defendants in performing their statutory duties.
The primary purpose of R. C. Chapter 117 is to discover misapplications of public funds by public officers and to permit the public treasury depleted by such misapplication to be made whole. See R. C. 117.10 and 117.13. The complaint herein alleges to the effect that plaintiff's public treasury has been depleted but cannot be made whole because of the negligence of defendants in prior audits, which if properly conducted would have avoided the depletion of plaintiff's public treasury. This constitutes a claim for relief within the contemplation of R. C. 2743.02(A).
Defendants have raised no other basis upon which it could be found that plaintiff's complaint does not set forth a claim for relief, and, accordingly, for the reasons set forth above, it should be concluded that the complaint does set forth a claim for relief for which a suit against the state is permitted by R. C. 2743.02(A).
Accordingly, I would sustain the assignment of error, reverse the judgment of the Court of Claims and remand this cause to that court for further proceedings in accordance with law. *Page 107