Ernst & Ernst v. Underwriters Nat. Assur. Co., No. 2-977A365

Docket NºNo. 2-977A365
Citation381 N.E.2d 897, 178 Ind.App. 77
Case DateOctober 23, 1978
CourtCourt of Appeals of Indiana

Page 897

381 N.E.2d 897
178 Ind.App. 77
ERNST & ERNST, Appellant (Defendant Below),
v.
UNDERWRITERS NATIONAL ASSURANCE COMPANY et al., Appellee
(Plaintiff Below),
and
Charles M. Beardsley, Booke and Company, et al., Appellees
(Defendants Below).
No. 2-977A365.
Court of Appeals of Indiana, Second District.
Oct. 23, 1978.

[178 Ind.App. 78]

Page 898

James A. McDermott, James A. Strain, Michael R. Fruehwald, Barnes, Hickam, Pantzer & Boyd, Indianapolis, Christian, Waltz, White, Klotz & Free, Noblesville, for appellant.

William C. Barnard, James K. Sommer, Eric R. Johnson, Sommer, Barnard, Freiberger & Scopelitis, Indianapolis, for Underwriters Nat. Assur. Co. et al.

Samuel A. Haubold, Lawrence P. Bemis, Russell J. Rotter, Kirkland & Ellis, Chicago, Ill., Smith, Pearce, Barr & Howard, Noblesville, Womble, Carlyle Sandridge & Rice, Winston-Salem, N. C., for Charles M. Beardsley and Booke & Co.

YOUNG, Judge.

The issue presented for review is whether the order of the trial court granting discovery of documents in the possession of an accountant was proper in view of the provisions of I.C.1971, 25-2-1-23 (Burns Code Ed.) (Section 23).

Ernst & Ernst (E & E), appellant-defendant, is a partnership engaged in the practice of certified public accounting. E & E was engaged to audit [178 Ind.App. 79] financial statements of Underwriters National Assurance Company (UNAC) for the year ended December 31, 1969. As a consequence of this audit, E & E expressed an opinion in the conventional form of an auditor's report. The auditor's report was addressed to UNAC's Board of Directors. The auditor's report and the accompanying financial statements were subsequently printed and distributed by UNAC to its shareholders and were included in its annual report to the applicable federal regulatory agency.

On December 21, 1970, all of UNAC's outstanding shares were exchanged for shares of UNAC International Corporation (International) and UNAC thereupon became a wholly-owned subsidiary of International. UNAC's shareholders became the shareholders of International and International became the corporate parent of UNAC.

E & E was subsequently engaged to audit International's consolidated financial statements for the years ending December 31, 1970, 1971, 1972 and 1973. The same audit services were performed for International as for UNAC. As a consequence of the audits of International's consolidated financial statements for the years ending December 31, 1970 and 1971, E & E also expressed separate opinions with respect to the financial statements of UNAC for the same years. These opinions were contained in separate auditor's reports which were addressed to International, UNAC's sole shareholder.

E & E's professional services in connection with these audit engagements are contested in this litigation. UNAC has alleged that "E & E's audits were not proper, workmanlike, thorough or skillfull" and that E & E is in breach of contract and guilty of negligence in connection with its audits of UNAC and International.

The documents sought by UNAC and Charles M. Beardsley and Booke and Company (Beardsley and Booke), appellees and co-defendants, relate primarily to these audit engagements. As more specifically described in the requests for production, UNAC seeks production of:

Any and all documents produced, prepared, received, obtained, utilized or relied upon by E & E in the course of preparing:

a. The 1969 Financial Statement
                b. The 1970 Financial Statement
                [178 Ind.App. 80] c. The 1971 Financial Statement
                d. The 1972 Financial Statement
                e. The 1973 Financial Statement
                

and Beardsley and Booke seek production of:

Page 899

All documents relating to audits of UNAC and the preparation (of) audited financial statements or other financial information for the following years:

a. 1969 d. 1972 b. 1970 e. 1973 c. 1971 f. 1974

UNAC and Beardsley and Booke have also requested documents evidencing any communications relating to UNAC which E & E had with various third parties. The documents, which E & E has not produced and to the production of which E & E has objected on the basis of Section 23, consist principally of its work papers relating to its audits of the financial statements of UNAC and International.

Rather than being contained as an amendment to I.C.1971, 34-1-14-5 (Burns Code Ed.) (Acts of 1881 (Spec.Sess.), ch. 38, § 275, p. 240), our witness incompetency statute, 1 Section 23 is one of twenty-six (26) sections of the "Public Accountancy Act of 1969," a legislative scheme designed to "regulate the practicing accountancy." The Act provides a broad range of control of accountants of every description; creates [178 Ind.App. 81] an "Indiana State Board of Accountancy" with enunciated powers and duties including the power to confer the approbation of state approved licensure upon various degrees of bookkeepers such as the appellant-defendant E & E.

Preferred professional standards are described with attendant limitations. The Act is particularly concerned with the certification of the various occupations within the accounting family. It is a statutory design to regulate those who deal in books and figures, profit and loss statements, balance sheets, audits and the entire prolithera of numbers.

Deep within the recesses of this comprehensive legislation lies the section which concerns us now. I.C.1971, 25-2-1-23 (Burns Code Ed.) states:

A certified public accountant or a public accountant or an accounting practitioner, or any employee, shall not be required to disclose or divulge information of which he may have become possessed, relative to and in connection with any professional service as a certified public accountant or a public accountant or accounting practitioner. The information derived from or as the result of such professional services shall be deemed confidential and privileged: Provided, That nothing herein shall be construed as prohibiting a certified public accountant or a public accountant from disclosing any data required to be disclosed by the standards of the profession in rendering an opinion on the presentation of financial statements, or in making disclosure where said financial statements, or The professional services of the accountant pertaining thereto are contested. (Emphasis added.)

The trial court held that Section 23 creates a privilege personal to the client and the privilege has been waived by the client. Moreover, the court held that the statutory proviso applies to the privilege and therefore, irrespective of who holds the privilege, E & E cannot invoke the privilege because its professional services are contested. We agree and affirm the order of discovery.

E & E argues that Section 23 should not be read in its entirety, but rather as containing two separate and distinct rules: one dealing with compelled disclosure of information,

Page 900

and the other dealing with voluntary disclosure of information. E & E's interpretation, in fact, consists of reading the first sentence of Section 23 without reference to the remaining portion of the section. As properly construed by the trial court, [178 Ind.App. 82] however, all portions of Section 23 must be treated as an integrated whole. The trial court's construction of Section 23 is consistent not only with the underlying purpose of the accountant-client privilege and other analogous testimonial privileges, but is also compelled by the application of settled rules of statutory construction.

In Walgreen Co. v. Gross Income Tax Division (1947), 225 Ind. 418, 75 N.E.2d 784, 785, the Supreme Court of Indiana stated that "in arriving at the meaning of a statute it must be considered as an entirety, each part being considered with reference to all other parts." This principle was recognized and applied by the lower court in its construction of Section 23. Section 23 cannot be divided into separate watertight compartments.

Section 23 contains two sentences. The first sentence basically states that a "certified public accountant . . . shall not be required to disclose or divulge information of which he may have become possessed, relative to and in connection with any professional service as a certified public accountant . . . ." The second sentence then amplifies and expands upon the first sentence in two ways. First, it provides that the information which is the subject of the section shall be regarded as both "confidential and privileged." In this statement the General Assembly has recognized a most basic rule: granting a privilege to the source of information requires that a correlative duty of confidentiality be placed on the recipient. Second, it qualifies and limits the scope and application of the prohibition against compelled disclosure. The prohibition does not apply where, as here, the accountant's professional services are contested.

E & E argues that the meaning of the first sentence must be insulated and distinguished from the meaning of the second sentence. E & E thereby assumes that the first sentence must be read without reference to the second. This assumption, however, is directly contrary to the rule of statutory construction stated in Walgreen.

In making its argument, E & E urges that it is simply giving the words in Section 23 their plain and ordinary meaning. We agree that words of a statute should be given their plain and ordinary meaning. But Walgreen states an equally important rule of statutory construction. These two rules are by no means inconsistent and both must be considered in construing a statute. See Department of Treasury v. Reinking (1941), 109 Ind.App. [178 Ind.App. 83] 63, 32 N.E.2d 741. It is urged that the proviso does not qualify the plain meaning of the first sentence. We reject this argument for two reasons. First, the general office of a proviso is to qualify or limit the plain meaning of another portion of a statute. See State v. Shrode (1949), 119 Ind.App. 57, 83 N.E.2d 900, 902. Second, the case cited by E &...

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23 practice notes
  • Fort Wayne Nat. Corp. v. Indiana Dept. of State Revenue, No. 49T10-9204-TA-00017
    • United States
    • Indiana Tax Court of Indiana
    • September 8, 1993
    ...789 (quoting McDougal v. State (1915), 183 Ind. 168, 170, 108 N.E. 524, 525); Ernst & Ernst v. Underwriters Nat'l Assurance Co. (1978), 178 Ind.App. 77, 83, 381 N.E.2d 897, 900 (citing State v. Shrode (1949), 119 Ind.App. 57, 83 N.E.2d 900, The GES's command is clear and unambiguous. The mu......
  • In Re Subpoena To Crisis Connection Inc.State Of Indiana, No. 19A05-0910-CR-602.
    • United States
    • Indiana Court of Appeals of Indiana
    • July 15, 2010
    ...the principle that the public is entitled to every person's evidence.’ ”) (quoting Ernst & Ernst v. Underwriters Nat'l Assurance Co., 178 Ind.App. 77, 381 N.E.2d 897, 902 (1978)). In Fromme's case, the trial court has already found that Fromme has met the particularity and materiality crite......
  • Gallagher v. Marion County Victim Advocate Program, Inc., No. 2-777-A-292
    • United States
    • Indiana Court of Appeals of Indiana
    • March 24, 1980
    ...493 F.2d 1282, cert. denied 419 U.S. 834, 95 S.Ct. 60, 42 L.Ed.2d 60; Ernst & Ernst v. Underwriters Nat. Assur. Co., (1978) Ind.App., 381 N.E.2d 897; Angel v. Behnke, (1975) 166 Ind.App. 541, 337 N.E.2d 503. Webster's Third New International Dictionary 1986 (3rd ed. 1976) offers altogether ......
  • Brunton v. Kruger, No. 4–13–0421.
    • United States
    • United States Appellate Court of Illinois
    • March 27, 2014
    ...See Federal Insurance, 816 S.W.2d at 329–30 (quoting Tenn.Code Ann. § 62–1–116); Ernst & Ernst v. Underwriters National Assurance Co., 178 Ind.App. 77, 381 N.E.2d 897, 899 (1978) (quoting Ind.Code § 25–2–1–23 (1971)). Nevertheless, courts in Tennessee and Indiana held that the client, not t......
  • Request a trial to view additional results
23 cases
  • Fort Wayne Nat. Corp. v. Indiana Dept. of State Revenue, No. 49T10-9204-TA-00017
    • United States
    • Indiana Tax Court of Indiana
    • September 8, 1993
    ...789 (quoting McDougal v. State (1915), 183 Ind. 168, 170, 108 N.E. 524, 525); Ernst & Ernst v. Underwriters Nat'l Assurance Co. (1978), 178 Ind.App. 77, 83, 381 N.E.2d 897, 900 (citing State v. Shrode (1949), 119 Ind.App. 57, 83 N.E.2d 900, The GES's command is clear and unambiguous. The mu......
  • In Re Subpoena To Crisis Connection Inc.State Of Indiana, No. 19A05-0910-CR-602.
    • United States
    • Indiana Court of Appeals of Indiana
    • July 15, 2010
    ...the principle that the public is entitled to every person's evidence.’ ”) (quoting Ernst & Ernst v. Underwriters Nat'l Assurance Co., 178 Ind.App. 77, 381 N.E.2d 897, 902 (1978)). In Fromme's case, the trial court has already found that Fromme has met the particularity and materiality crite......
  • Gallagher v. Marion County Victim Advocate Program, Inc., No. 2-777-A-292
    • United States
    • Indiana Court of Appeals of Indiana
    • March 24, 1980
    ...493 F.2d 1282, cert. denied 419 U.S. 834, 95 S.Ct. 60, 42 L.Ed.2d 60; Ernst & Ernst v. Underwriters Nat. Assur. Co., (1978) Ind.App., 381 N.E.2d 897; Angel v. Behnke, (1975) 166 Ind.App. 541, 337 N.E.2d 503. Webster's Third New International Dictionary 1986 (3rd ed. 1976) offers altogether ......
  • Brunton v. Kruger, No. 4–13–0421.
    • United States
    • United States Appellate Court of Illinois
    • March 27, 2014
    ...See Federal Insurance, 816 S.W.2d at 329–30 (quoting Tenn.Code Ann. § 62–1–116); Ernst & Ernst v. Underwriters National Assurance Co., 178 Ind.App. 77, 381 N.E.2d 897, 899 (1978) (quoting Ind.Code § 25–2–1–23 (1971)). Nevertheless, courts in Tennessee and Indiana held that the client, not t......
  • Request a trial to view additional results

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