Court Opinion

ID: 6757644
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:28:30.276917+00
Date Added: 2024-06-11T16:02:29.784865
License: Public Domain

Krupansky, J.,
dissenting. In abandoning the doctrine of privity the majority’s decision needlessly extends the limits of accountants’ liability and leaves the accountant open to unlimited and indefinite liability to third parties. I, therefore, respectfully dissent.
The majority states:
“[W] e hold that an accountant may be held liable by a third party for professional negligence when that third party is a member of a limited class whose reliance on the accountant’s representation is specifically foreseen.
“Applying this rule to the facts of the instant case, we conclude that the limited partners in the Car Wash partnerships constitute a limited class of investors whose reliance on the accountant’s certified audits for purposes of investment strategy was specifically foreseen by defendant. ” (Emphasis added.)
It must be remembered this court is reviewing the trial court’s grant of a motion to dismiss. As such, the only “facts” before this court are those alleged in the amended complaint. See e.g., Toms v. Delta Savings & Loan Assn. (1955), 162 Ohio St. 513. Conspicuously absent from plaintiffs’ amended complaint are any allegations which would lead to the conclusion that plaintiffs’ reliance on defendant’s work for purposes of investment stategy was specifically foreseen by defendant. There is no allegation to the effect that defendant intended the information to be used by plaintiffs in their investment decision nor that defendant knew plaintiffs would rely on the information for such a purpose. The implicit holding in the majority opinion is that limited partners fall within the category of the *161specifically foreseen simply by virtue of their status as limited partners. The rule that emerges is the accountant who is hired by the partnership is liable to all limited partners who happen to rely on the accountant’s work for any of a myriad of purposes. In my view, this rule is too broad and ignores the realities of the accountant-client relationship.
In the typical accountant-client contractual relationship, the client, not third parties, exercises control over what work is to be done and the purposes for which it is to be used. The accountant intends to supply the information to the client for the client’s benefit and not for the benefit of third parties who are not in privity with the accountant. Since it is the client who controls the work and for whose benefit the work is performed by the accountant, the accountant should be held legally responsible only to the client for any errors in the work. The majority’s decision forms the foundation for holding the accountant liable to any reliant third party. This in effect gives a free ride to non-paying parties. I would hold that parties not in privity with the accountant rely on his work at their own peril.
To extend liability to third persons not in privity with the accountant places an enormous burden on the accounting profession which is not justified by a countervailing increase in public benefit. As one commentator noted:
“The benefit to society from the numerous audits performed without error outweighs the benefits to society derived from extension of liability for the infrequent audit which may be negligent, an extension which has the potential to financially destroy an accounting firm because of one negligent audit.” Note, Public Accountants and Attorneys: Negligence and the Third Party, 47 Notre Dame Lawyer 588, 604.
The expansion of accountants’ duty, in the majority’s words, “to any third person to whom they understand the reports will be shown for business purposes” is not warranted in light of the extreme hazards and immense potential liability which are thereby created for the accounting business. This extension of liability is particularly injurious to the smaller accounting firms which, under the pressure of expanded liability, will be less able to compete with the larger firms.
I would, therefore, affirm the judgment of the Court of Appeals.