Blumberg v. Touche Ross & Co.
Decision Date | 18 September 1987 |
Citation | 514 So.2d 922 |
Parties | Esther O. BLUMBERG, et al. v. TOUCHE ROSS & CO., etc. 85-1049. |
Court | Alabama Supreme Court |
C.R. Lewis of Lewis & Brackin, and G.M. Harrison of Merrill & Harrison, Dothan, for appellants.
Lee H. Zell and Susan Salonimer of Berkowitz, Lefkovits, Isom & Kushner, Birmingham, for appellee.
"Thoughts much too deep for tears subdue the court When I assumpsit bring, and god-like waive the tort." 1
Was the plaintiffs' action time barred? To answer this, we must determine whether the plaintiffs could proceed in assumpsit against an accounting firm, Touche Ross & Co., that the plaintiffs employed to examine the balance sheet of Blumberg & Sons, a retail department store, operated by the plaintiffs as a partnership, or whether the alleged wrong was tortious only. The suit was filed more than one year, 2 but less than six years, after Touche Ross allegedly failed to disclose a material overstatement of accounts receivable, which should have been discovered by Touche Ross had it conducted its examination in accordance with generally accepted auditing standards. We hold that the plaintiffs can proceed in assumpsit, and that the action, therefore, was not time barred.
The agreement between the plaintiffs and Touche Ross is embodied in a June 3, 1974, letter from Touche Ross to the plaintiffs. The letter, in pertinent part, provided:
The plaintiffs accepted these terms by signing and returning a copy of this letter. On July 9, 1974, Touche Ross sent the plaintiffs the following letter:
On February 15, 1980, plaintiffs filed suit in the Circuit Court of Houston County, alleging that the balance sheet report done by Touche Ross failed to disclose a material overstatement of accounts receivable that should have been detected by Touche Ross if it had conducted its "examination in accordance with generally accepted auditing standards" and alleging that as a result of this "breach of contract" plaintiffs sustained damages. Touche Ross filed a motion to dismiss, or in the alternative, for a change of venue because plaintiffs had characterized the action as being in contract only, and venue was not proper in Houston County because none of the individual defendants, who were dismissed as defendants, or partners of Touche Ross resided in Houston County. Section 6-3-2(a)(2), Alabama Code 1975. The parties stipulated for the case to be transferred to Jefferson County for a non-jury trial, and the trial court entered an order transferring the case. Touche Ross filed its answer, and the parties conducted discovery for the next several years. Touche Ross filed a motion for summary judgment, which asserted that the plaintiffs' claim sounded in tort, not in contract, and was barred by the one-year statute of limitations. This motion was granted. Plaintiffs appealed.
The parties do not argue the "law of the case" doctrine, and the case will not be decided on that doctrine, though it might have been applicable. Under the doctrine of the "law of the case," whatever is once established between the same parties in the same case continues to be the law of that case, whether or not correct on general principles, so long as the facts on which the decision was predicated continue to be the facts of the case. Alford v. Summerlin, 423 So.2d 482 (Fla.Dist.Ct.App.1982). If the cause of action was in tort, Touche Ross's motion for a change of venue was without merit. Under the doctrine of the law of the case, it could be argued that Touche Ross should be precluded from contending that the cause of action was in tort, after it had received the benefit and advantage of claiming that it was in contract, so long as the facts upon which the original decision was made continued to be the facts of the case. Once a party receives the advantage of an action being a contract action, it must suffer the disadvantage of it being a contract action under the doctrine of the law of the case. See Ferrier v. City of White Plains, 262 A.D. 94, 28 N.Y.S.2d 218 (1941), appeal denied, 262 A.D. 962, 30 N.Y.S.2d 399 (1941); Glenwood Hospital, Inc. v. Louisiana Hosp. Service, Inc., 419 So.2d 1269 (La.App.1982); Day v. Campbell-Grosjean Roofing & Sheet Metal Corp., 260 La. 325, 256 So.2d 105 (1971); Mann v. R. Simpson & Co., 286 N.Y. 450, 36 N.E.2d 658 (1941), which involved a stipulation, as did the case at issue; and Cote v. Boise, 111 Vt. 343, 16 A.2d 175 (1940).
If an accountant enters into an express agreement to perform his duties in accordance with generally accepted standards of his profession and does not, may the injured contracting party sue for breach of contract? That is the issue before us.
Because we have found no Alabama cases discussing a client's remedies for negligent performance of an accounting services contract, we have examined secondary sources and the cases of other jurisdictions.
Our examination of treatises, law review articles, and other secondary sources dealing specifically with the liability of accountants to their clients reveals near universal agreement with the proposition that such liability may arise in either tort or contract for the negligent performance of an accounting service. See Restatement (Second) of Torts § 552 comment g (1977); Annot., Accountant's Malpractice Liability to Client, 92 A.L.R.3d 396, 404-05 (1979); D. Causey, Duties & Liabilities of Public Accountants 61-65 (1979); R. Gormely, The Law of Accountants & Auditors p 5.01, at pp. 5-1 through 5-5 (1981); Hawkins, Professional Negligence Liability of Public Accountants, 12 Van.L.Rev. 797, 797-98, 800 (1959). The language used in most of these authorities is quite broad, and the implication is that there is little controversy in the law on this point. See, e.g., R. Gormely, supra; Hawkins, supra, at 800. But see D. Causey, supra, at 62 ( ).
Although these authorities often do not discuss in great detail the reasons for the availability of both remedies, there appears to be a general recognition that the tort duty to exercise reasonable professional care can overlap in some degree with a contractual obligation to do the same. Consequently, these authorities take the view that the plaintiff may often avail himself of either remedy in cases of defective performance.
The law of several jurisdictions is summarized in Annot., Accountant's Malpractice Liability to Client, 92 A.L.R.3d 396, 403-05 (1979); and Annot., Application of Statute of Limitations to Damage Actions Against Public Accountants for Negligence in Performance of Professional Services, 26 A.L.R.3d 1438 (1969).
In City of East Grand Forks v. Steele, 121 Minn. 296, 141 N.W. 181 (1913), the court held that a complaint stated a cause of action for breach of contract, and not in tort, where it alleged that accountants employed to perform an audit negligently failed to discover an employee's defalcations.
In Dantzler Lumber & Export Co. v. Columbia Casualty Co., 115 Fla. 541, 156 So. 116 (1934), the court recognized that the client's cause of action could be based on either breach of contract or tort.
In the following cases the cause of action was held to be in tort and not for breach of contract: Sato v. Van Denburgh, 123 Ariz. 225, 599 P.2d 181 (1979); Brueck v. Krings, 230 Kan. 466, 638 P.2d 904 (1982).
Touche Ross cites Carr v. Lipshie, 8 A.D.2d 330, 187 N.Y.S.2d 564 (1959), aff'd, 9 N.Y.2d 983, 218 N.Y.S.2d 62, 176 N.E.2d 512 (1961), as a case substantially similar to the case at issue; and, it is. Carr claimed that the accounting firm it employed to do an audit failed to discover allegedly false bookkeeping entries. The defendant argued that the action was barred by the statute of limitations for negligence actions, while Carr characterized the defendant's conduct as a breach of contract. Touche Ross cites Adler & Topal, P.C. v. Exclusive Envelope Corp., 84...
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