Blu-J, Inc. v. Kemper C.P.A. Group

• Court: U.S. Court of Appeals — Eleventh Circuit
• Writing for the Court: Before KRAVITCH and ANDERSON, Circuit Judges, and GODBOLD; ANDERSON
• Citation: Blu-J, Inc. v. Kemper C.P.A. Group, 916 F.2d 637 (11th Cir. 1990)
• Decision Date: 06 November 1990
• Docket Number: BLU-,No. 89-3687,INC,89-3687
• Parties: RICO Bus.Disp.Guide 7613, 31 Fed. R. Evid. Serv. 653 , Plaintiff-Appellant, v. KEMPER C.P.A. GROUP, Defendant-Appellee.

Page 637

916 F.2d 637

RICO Bus.Disp.Guide 7613, 31 Fed. R. Evid. Serv. 653

BLU-J, INC., Plaintiff-Appellant, v. KEMPER C.P.A. GROUP, Defendant-Appellee.

No. 89-3687.

United States Court of Appeals Eleventh Circuit.

Nov. 6, 1990.

Alfred M. Butzbaugh, Butzbaugh & Ryan, St. Joseph, Mich., for plaintiff-appellant.

John E. Herndon, Jr., Jeffrey A. Blaker, Hinshaw, Culbetson, Moelmann, Hoban & Fuller, Miami, Fla., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before KRAVITCH and ANDERSON, Circuit Judges, and GODBOLD, Senior Circuit Judge.

ANDERSON, Circuit Judge:

I. BACKGROUND

In 1982, appellant Blu-J, Inc. ("Blu-J") became interested in an investment opportunity in World Class, Inc. ("World Class"), a Florida corporation involved in the manufacture of specialty T-Shirts. The investment proposal called for Blu-J to lend World Class 352,000.00 dollars and for a related entity to purchase a minority stock ownership position in World Class. To facilitate this transaction, Stanley C. Johnston, president of Blu-J, sought information regarding the financial condition of World Class from Kemper C.P.A. Group ("Kemper"), the accounting firm for World Class. According to testimony adduced at trial, Paul W. Stephens, an accountant at Kemper who handled the World Class account, told Johnston that Kemper would issue good financial statements for World Class. R6-208.

Based on information from a variety of sources, including Kemper's World Class financial statements, Blu-J elected to proceed with the loan and stock purchase transaction. In 1984 World Class began to have financial difficulties which spiraled into a Chapter 11 bankruptcy proceeding in early 1985. R6-230 to 240. As a result Blu-J was unable to recover its investment in World Class. This lawsuit followed in which Blu-J claimed that its loss was caused by the allegedly erroneous and fraudulent financial statements issued by Kemper.

In its complaint, Blu-J included counts alleging negligence, gross negligence, fraud, and violations of civil RICO provisions. Blu-J also alleged that it was a third party beneficiary of Kemper's contract with World Class to provide accounting services. At the close of plaintiff's evidence, the district court directed a verdict in favor of the defendant Kemper on the negligence counts and the third party beneficiary count. The jury returned verdicts for Kemper on the fraud and civil RICO counts. The district court denied appellant's motion for a new trial. On this appeal, Blu-J argues that the district court erred in directing a verdict on the third party beneficiary count and on the two negligence counts, that the district court erred in excluding certain evidence, and that the weight of the evidence necessitates a new trial on the fraud and civil RICO counts.

II. DISCUSSION

A. The Directed Verdict on the Third Party Beneficiary Count

Relying on Seaboard Sur. Co. v. Garrison, Webb & Stanaland, 823 F.2d 434 (11th Cir.1987), Blu-J argues that the district court erred when it directed a verdict for Kemper on the third party beneficiary count. In Seaboard Surety, which involved a surety's attempt to recover for financial loss allegedly caused by its reliance on a faulty audit prepared for the principal, we affirmed a jury verdict finding that, although the surety was a third party beneficiary, no breach of contract had occurred. Blu-J essentially contends that because that case was allowed to go to the jury, the district court should not have precluded jury consideration in the instant case.

Seaboard Surety does not stand for the proposition that the elements of a Florida third party beneficiary claim may be ignored in a professional liability case. In Florida ex rel. Westinghouse Elec. Supply Co. v. Wesley Constr. Co., 316 F.Supp. 490, 495 (S.D.Fla.1970), aff'd, 453 F.2d 1366 (5th Cir.1972) (citing American Sur. Co. of New York v. Smith, 100 Fla. 1012, 130 So. 440 (1930)), the court explained that:

In order for one to qualify as a third party beneficiary under a contract, it must be shown that the intent and purpose of the contracting parties was to confer a direct and substantial benefit upon the third party. In the absence of a clear intent to benefit the third person, he cannot sue on the contract. Where the contract is designed solely for the benefit of the formal parties thereto, a third person cannot maintain an action thereon, even though such third person might derive some incidental or consequential benefit from its enforcement.

The record in the instant case is devoid of evidence showing intent, much less clear intent, on the part of the parties to the contract, Kemper and World Class, to benefit Blu-J or other third parties. In the face of this dearth of evidence, the district court was correct in directing a verdict for Kemper on Blu-J's third party beneficiary claim.

B. The Directed Verdict on the Negligence Counts

Under Florida law at the time of trial, Blu-J was required to show privity of contract with Kemper in order to proceed in negligence. Investment Corp. of Florida v. Buchman, 208 So.2d 291 (Fla.Dist.Ct.App.1968). The district court correctly recognized this and directed a verdict on the negligence claims because Blu-J had failed to demonstrate privity. R6-326.

In Buchman, the Florida court expressly declined to adopt the Restatement of Torts Sec. 552 and its expansion of professional liability beyond the confines of privity. Id. at 295-96. However, after the trial but before this appeal reached oral argument, the Florida Supreme Court, in First Florida Bank, N.A. v. Max Mitchell & Co., 558 So.2d 9 (1990), overruled the Buchman decision and adopted the rule from Restatement (Second) of Torts Sec. 552 (1976).

The new rule provides:

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for the pecuniary loss caused to them by their justifiable reliance on the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

The Max Mitchell court thus rejected the requirement of privity and adopted the foregoing rule from the Restatement. The Florida Supreme Court also held this same rule applies to allegations of negligence and gross negligence alike. Max Mitchell, 558 So.2d at 14. This intervening decision of the Florida Supreme Court requires that we reverse the district court's directed verdict on the two negligence counts. ¹ On remand, the district court will apply the Restatement rule pursuant to the Max Mitchell decision.

Counsel for Kemper argues that the directed verdict on the negligence claims should be affirmed notwithstanding the Max Mitchell case, because the doctrine announced in AFM Corp. v. Southern Bell Tel. & Tel. Co., 515 So.2d 180 (Fla.1987) bars Blu-J's negligence claims. AFM involved a tort claim against the publisher of a yellow page phone directory for economic loss caused by the publication of an incorrect telephone number. Recognizing that the plaintiff had an available cause of action for breach of contract, which it elected not to pursue, the court held that "without some conduct resulting in personal injury or property damage, there can be no independent tort flowing from a contractual breach which would justify a tort claim solely for economic losses." Id. at 181-82. Kemper argues that Blu-J's third party beneficiary theory, although it resulted in a directed verdict which Kemper contends should be affirmed, nevertheless is an available alternative remedy within the meaning of AFM that bars recovery of economic losses on a negligence theory. We reject this argument.

The AFM case does not stand for the proposition that the mere allegation of any alternate theory of recovery forecloses the award of economic damages in tort. Rather, the court in AFM merely held that a party to a contract could not recover economic damages on a tort theory in the absence of a tort independent of the breach of contract itself. Id. at 181. That this was the holding of AFM is demonstrated by the fact that the court distinguished A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla.1973).

In Moyer, the plaintiff was a general contractor who alleged economic and other loss resulting from an architect's failure to adequately perform his contractual duties to the owner. The plaintiff advanced two alternate theories for recovery: (1) the architect was liable for negligence despite a lack of privity; and (2) that he was a third party beneficiary of the contract. Finding no contractual intent to benefit the general contractor, the court rejected the third party beneficiary theory. Id. at 402-03. However, the court allowed the plaintiff to recover economic loss pursuant to his negligence cause of action. Id. at 398-402. The AFM court distinguished Moyer on the ground "that the plaintiff was not the beneficiary, either directly or as a third-party beneficiary, of the underlying contract." AFM, 515 So.2d at 181. Thus, it is clear that the mere allegation of a third party beneficiary claim is not enough to trigger the AFM doctrine.

In the instant case, we need not address the issue whether the availability of a valid third party beneficiary cause of action would bar a tort recovery for economic loss. In this case, Blu-J does not have the status of a third p...