Credit Alliance Corp. v. Arthur Andersen & Co.

• Decision Date: 13 May 1983
• Citation: 122 Misc.2d 1045,471 N.Y.S.2d 938
• Court: New York Supreme Court
• Parties: CREDIT ALLIANCE CORPORATION and Leasing Service Corporation, Plaintiffs, v. ARTHUR ANDERSEN & CO., Defendant.

Page 938

471 N.Y.S.2d 938

122 Misc.2d 1045

CREDIT ALLIANCE CORPORATION and Leasing Service Corporation Plaintiffs, v. ARTHUR ANDERSEN & CO., Defendant.

Supreme Court, Special Term New York County, Part I.

May 13, 1983.

Milberg, Weiss, Bershad, Specthrie & Lerach, New York City, for plaintiffs.

Debevoise, Plimpton, Lyons & Gates, New York City, and Wilson & McIlvaine, Chicago, Ill., for defendant.

EDWARD J. GREENFIELD, Justice:

Plaintiffs' motion to reargue is granted and upon reargument the court decides as follows:

Plaintiffs, financial service companies, provided financing to L.B. Smith, Inc. of Virginia (Smith), a seller and lessor of heavy construction equipment. As part of a request for increased financing, Smith submitted a copy of its consolidated financial statement, prepared by the defendant accounting firm, Arthur Andersen & Co. The financial statement was dated March 21, 1978 reflecting the financial status of Smith as of December 31, 1976 and December 31, 1977 (the "1977 report"), and was received by Smith on September 28, 1978. Plaintiffs allege that reliance on this report induced further extensions of credit to Smith. Plaintiffs also allege that a further audited financial statement was requested of Smith as a condition to continued credit extensions. Complying, Smith submitted a certified financial statement for 1979 (dated June 1, 1979) (the "1979 report") which was also prepared by the defendant accounting firm. Plaintiffs allege that, relying on the 1979 report, they continued to finance Smith. In October, 1980, however, Smith declared bankruptcy and defaulted on the sums advanced by the plaintiffs.

Plaintiffs brought suit against Andersen alleging negligence and fraud in the preparation of Smith's financial statements. Andersen moved to dismiss plaintiffs' first cause of action sounding in negligence on the grounds that the complaint failed to state a cause of action and that the negligence action was barred by the statute of limitations. Andersen also moved to dismiss plaintiffs' second cause of action sounding in fraud, for failure to plead with sufficient detail (CPLR § 3016[b] ). In its prior decision, this court held that plaintiffs did make out a cause of action in negligence since, although defendant did not owe a duty of care to the general public, (See Ultramares Corp. v. Touche, 255 N.Y. 170, 181, 174 N.E. 441) plaintiffs were in the limited class of financiers whose reliance on defendant's financial reports was foreseeable. Plaintiffs were thus owed a duty of care by Andersen. (See White v. Guarente, 43 N.Y.2d 356, 362, 401 N.Y.S.2d 474, 372 N.E.2d 315). Nevertheless, the action was held to be barred by the three year statute of limitations because the injury to plaintiffs was held to have accrued when the defendant's work was completed--March 21, 1978. Plaintiffs commenced this lawsuit on August 4, 1981, more than three years later, and therefore, the first cause of action was held to be time-barred. Plaintiffs' second cause of action alleging fraud was determined to be valid and defendant's motion to dismiss was denied.

Plaintiffs contend upon this motion that since their action was for negligence, the accrual of the three year statute of limitations is from the date of injury rather than from the date of completion of the work which would be the appropriate standard in malpractice actions.

Alternatively, plaintiffs allege that the defendant's 1979 report was a separate act of negligence and should be used as a separate predicate for statute of limitations purposes.

It is unnecessary to consider the merits of plaintiffs' arguments concerning the 1979 report since this court is persuaded that the statute of limitations for an accountant's negligence, upon which a limited and determinable group rely, should begin to run from the date of injury.

Although an action for an accountant's malpractice is governed by CPLR § 214(6) and runs from the time of the completion of the accountant's work (Sosnow v. Paul, 43 A.D.2d 978, 352 N.Y.S.2d 502, aff'd. 36 N.Y.2d 780, 369 N.Y.S.2d 693, 330 N.E.2d 643), an action brought by an individual or group of individuals, not in privity with the accountant but whose reliance on the accountant's work was foreseeable and within the accountant's contemplation (Palsgraf v. Long Island Railroad, 248 N.Y. 339, 162 N.E. 99), is essentially an action for negligence (White v. Guarente, 43 N.Y.2d 356, 361-363, 401 N.Y.S.2d 474, 372 N.E.2d 315). Such an action should be governed, therefore, by a three-year statute of limitations running from the date of injury. (SeeCubito v. Kreisberg, 69 A.D.2d 738, 744, 419 N.Y.S.2d 578, aff'd. 51 N.Y.2d 900, 434 N.Y.S.2d 991, 415 N.E.2d 979).

The question that remains, however, is whether in a negligence action such as this, the date of injury is to be considered co-terminous with the date of completion.

In White v. Guarente, 43 N.Y.2d 356, 401 N.Y.S.2d 474, 372 N.E.2d 315, a limited partner brought suit against the general partners and alleged a single cause of action, the gravamen of which is for professional malpractice, against Arthur Andersen & Co. asserting negligent execution of professional services in preparation of the financial audit of the partnership. The Court of Appeals sustained the cause of action against the accountants holding that the plaintiff was a member of a limited and determinable class to whom the defendant owed a duty of care (43 N.Y.2d at 361, 401 N.Y.S.2d 474, 372 N.E.2d 315; see also Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275). Although the statute of limitations was not at issue in White, the Court stated that a negligent statement made by an accountant upon which others would be expected to rely "may be the basis for recovery of damages * * *, but such information is not actionable unless expressed directly, with knowledge or notice that it will be acted upon, to one * * * whom the author is bound by some relation of duty, arising out of contract or otherwise, to act with care if he acts at all." (43 N.Y.2d at 363, 401 N.Y.S.2d 474, 372 N.E.2d 315) (citations omitted). In the present action, defendant's alleged negligence would not be actionable, under the reasoning in White, until the financial statement was expressed directly to plaintiffs, i.e., the date the 1977 report was received by the plaintiffs, September 28, 1978. Plaintiff's complaint, interposed on August 4, 1981, is thus within the three year statute of limitations for negligence actions. Whether it was reasonable for plaintiffs to rely on a financial statement already nine months old when received is a question of fact not before this court on this motion.

Cubito v. Kreisberg, 69 A.D.2d 738, 419 N.Y.S.2d 578, aff'd. 51 N.Y.2d 900, 434 N.Y.S.2d 991, 415 N.E.2d 979, also supports this reasoning. In Cubito, a tenant in an apartment house brought suit against the architect of the building for personal injuries suffered as a result of the architect's alleged negligence in the planning and design of the laundry room. The architect, raising the defense of the three year statute of limitations set forth in CPLR § 214(6), claimed that the plaintiff's action was time-barred since the defendant had completed work on the building more than four years prior to the commencement of suit by plaintiff. The Appellate Division reasoned, however, that the plaintiff's suit was not a malpractice action because no professional relationship existed between the parties (69 A.D.2d at 742, 419 N.Y.S.2d 578). The court stated, nevertheless, that the plaintiff possessed a valid cause of action because "the wrongful conduct of the professional in rendering services to his client resulting in injury to a party outside the relationship is simple negligence." (Id.) The court...