Accounting Malpractice Claims Survive Dismissal in Recent Questionable Ruling in Chaikovsa, LLC v. Ernst & Young, LLP
Privity of contract is alive and well! —but can be limited as defendant Ernst & Young found out. E&Y moved for dismissal of accounting malpractice negligence claims asserting that plaintiff lacked privity of contract. The court rejected this position finding “that plaintiffs have sufficiently alleged that defendant had a duty to act in a nonnegligent manner toward plaintiff because plaintiff was known to defendant to be a limited partner of one of the companies to which it was contractually obligated to furnish the report at issue.”
Certainly the court erred on this issue. The parties in privity are E&Y and the company, not E&Y and the principals. An exception I can envision to this might be if the parties’ contract expressly brought the principals—including limited partners—into the terms of the contract or expressly identified the principals as person who were expected to rely on E&Y’s work. Otherwise, E&Y could be held to be in privity, and thereby liable, to an army of individuals with whom E&Y and the company never intended to be in privity.
Also, if you thought that that motions to dismiss are solely dependent on the pleadings alleged in the plaintiff’s complaint and could not be supplemented in opposition to such a motion, rethink. The court applied the following standard:
“ ‘In assessing a motion under CPLR 3211(a)(7), ․ a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint’ ” ([cite omitted]) and the allegations in the complaint and the affidavits submitted in opposition to the motion to dismiss must be accepted as true and given every favorable inference.
The court did not appear to convert the motion to dismiss into a motion for summary judgment due to the extraneous information provided. Allowing affidavits and materials to supplement a complaint appears to be an improper end-around the requirement that a pleading stand on its own or require a motion to amend to qualify or alter its assertions.
E&Y seems to have been the recipients of less-than-quality rulings.
- Your Motion to Dismiss in Utah Is Not Limited to the Allegations in the Complaint
- Utah Legislature May Materially Alter Medical Malpractice Claims
- The New Pleading Standard in Federal Court Requires Greater Factual Content
- Utah Legislature Modifies Medical Malpractice Claims Part 2
- Daniels v. Gamma: a Basketful of Medical Malpractice Rulings
- Your Motion to Dismiss in Utah Is Not Limited to the Allegations in the Complaint
- Utah Legislature May Materially Alter Medical Malpractice Claims
- The New Pleading Standard in Federal Court Requires Greater Factual Content
- Utah Legislature Modifies Medical Malpractice Claims Part 2
- Daniels v. Gamma: a Basketful of Medical Malpractice Rulings