Federal Ins. Co. v. Arthur Anderson & Co.
| Decision Date | 09 September 1991 |
| Docket Number | No. 01-S-01-9009-CH00082,01-S-01-9009-CH00082 |
| Citation | 816 S.W.2d 328 |
| Parties | FEDERAL INSURANCE COMPANY, Plaintiff/Appellee, v. ARTHUR ANDERSON & CO., Defendant/Appellant. 816 S.W.2d 328 |
| Court | Tennessee Supreme Court |
James F. Neal, James G. Thomas, Neal & Harwell, Nashville, for defendant/appellant.
James M. Doran, Jr., Sam H. Poteet, Jr., Manier, Herod, Hollabaugh & Smith, Nashville, for plaintiff/appellee.
Joel M. Leeman, Tennessee Soc. of Certified Public Accountants, Gullett, Sanford, Robinson & Martin, Nashville, Amicus Curiae.
We granted the appeal in this case to address important questions concerning the scope of the privilege granted under the provisions of T.C.A. Sec. 62-1-116 relative to information communicated or obtained by an accountant by reason of the confidential nature of their employment.
The plaintiff, Federal Insurance Company, is engaged in the business of providing construction performance and payment bonds, and is licensed to do business in the State of Tennessee. Defendant, Arthur Anderson & Co., is a partnership of certified public accountants with an office in Nashville, Tennessee. Rodgers Companies, Inc., is a construction company with its offices and headquarters in Nashville, Tennessee.
In summary, the complaint in the case alleges that Anderson examined and audited the consolidated financial statements of Rodgers for the years 1982 through 1984. It is alleged that Anderson's audits were negligently performed; the financial statements were misleading; and that Federal relied on the financial statements to its detriment in connection with its decision to write bonds for Rodgers Construction Companies, and its subsequent bonding of Rodgers Construction Projects. As a result it sustained damages of over $50,000,000. The cause of action is stated to be in terms of negligence, negligent misrepresentation, and breach of a third-party beneficiary contract.
Anderson denied that the audits were negligently performed and denied liability to Federal in any event, particularly in the absence of any contractual relationship between plaintiff and defendant.
Federal served Anderson with a set of ten (10) document production requests pursuant to Tenn.R.Civ.P. 34. In connection with its request for production of documents, plaintiff provided defendant a sworn and notarized waiver executed by the President of Rodgers Companies, Inc. waiving any and all privileges, without limitation, for the parent company as well as all related subsidiaries and entities. The document expressly disclaimed any rights of confidentiality of whatever nature which might be deemed to exist with respect to the services of defendant. The document expressly authorized defendant to release to plaintiff and/or its counsel any and all information and documents it might have. In response to each request, Anderson objected on the ground that the documents called for were subject to the statutory accountant privilege, T.C.A. Sec. 62-1-116. A motion was filed by plaintiff to compel production of the documents.
Following a hearing, the trial court entered a memorandum and order which stated in pertinent part that, by its language, T.C.A. Sec. 62-1-116 prohibits accountants from divulging information received by reason of the confidential nature of their employment. It cannot be read as giving an accountant the right to decide whether or not to disclose this information. Since the information involved originated with the client with the expectation of confidentiality, it is only on behalf of the client that the privilege can validly exist. The defendant's client in this case has waived its rights to confidentiality of its records, and the privilege no longer exists. Defendant may not withhold requested reports and records. Plaintiff's motion to compel production of the documents is granted.
Anderson sought interlocutory review of the trial court's order pursuant to T.R.A.P. 9. The trial court permitted the appeal, which was granted by the Court of Appeals. That court considered the matter, reviewed the statute and the authorities, and affirmed the action of the trial judge. That court reasoned that the plain words of the statute compelled the conclusion that to come within its terms information must have been communicated to the accountant in a confidential setting arising from the employment. Therefore, the privilege existed to protect the confidence of the one communicating the information. Thus, it could only follow that the privilege belonged to the client. The court rationalized that the position taken by the appellant, that the privilege belongs solely to the accountant, would lead to the unusual result of allowing an accountant to invoke the privilege in a dispute with the client and the statute could not be read to accomplish that result.
The appeals court also considered an amicus curiae brief filed by the Tennessee Society of Certified Public Accounts which argued that an accountant receives information from a wide range of sources and that such sources would be unwilling to provide information if they believed that accountants might be compelled to disclose from whence the information came. Saying that although the record does not support the assertion, the court could not find any expression in the statute or otherwise referring to that situation.
Having granted the appeal and given due consideration to the argument made by appellant, we now affirm the judgment of the trial court and the Court of Appeals. The specific issue presented is "whether the privilege created by T.C.A. Sec. 62-1-116, providing that certified public accountants shall not in any manner be required to divulge any information which may have been communicated to them or obtained by them by reason of the confidential nature of their employment, can nonetheless be waived by the accountant's client."
The arguments made by the defendant are persuasive, but not conclusive of the issue. It is first insisted the natural and ordinary meaning of the statute demands the conclusion that the accountant, not the client, is the holder of the privilege created by its terms. The full text of the statute reads as follows:
62-1-116. Confidential information.--
(a) Certified public accountants and public accountants practicing in this state shall not divulge nor shall they in any manner be required to divulge any information which may have been communicated to them or obtained by them by reason of the confidential nature of their employment.
(b) Information derived as a result of such professional employment is deemed to be confidential, except that nothing in any section of this chapter shall be construed as modifying, changing or affecting the criminal or bankruptcy laws of this state or of the United States.
Defendant insists that the plain and unambiguous language of the statute allows for no application that the privilege belongs to anyone but the accountant. The Court of Appeals opinion is belittled for its brevity in its analysis of the text of the statute. However, we find its analysis to be more direct than defendant's discussion of its terms. Since the privilege is of statutory origin and we have not been provided with any viable precedent to guide us we must look to its genesis to establish the intent of the legislature in its enactment.
The oldest known existing privilege pertaining to communications between a professional and one who stands in a confidential relationship such as a client or patient, etc., relates to communications between client and lawyer. McCormick, in his treatise on evidence, refers to it...
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