Fidelity and Deposit Co. of Maryland v. Arthur Andersen & Co.

• Decision Date: 04 June 1987
• Citation: 515 N.Y.S.2d 791,131 A.D.2d 308
• Parties: FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellant-Respondent, v. ARTHUR ANDERSEN & CO., Defendant-Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 791

515 N.Y.S.2d 791

131 A.D.2d 308

FIDELITY AND DEPOSIT COMPANY OF MARYLAND Plaintiff-Appellant-Respondent, v. ARTHUR ANDERSEN & CO., Defendant-Respondent-Appellant.

Supreme Court, Appellate Division First Department.

June 4, 1987.

J.C. Thau, T.W. Hyland, M.M. Feigin, New York City, for plaintiff-appellant-respondent.

A.J. Sorkowitz, J.D. Zirin, J.J. Sabella, New York City, for defendant-respondent-appellant.

Before KUPFERMAN, J.P., and ROSS, CARRO, ROSENBERGER and WALLACH, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Martin Evans, J.), entered December 5, 1986, dismissing plaintiff's third amended complaint with leave to replead, is unanimously reversed, on the law, and the motion to dismiss the complaint denied, without costs. Cross-appeals from so much of the orders of the Supreme Court, New York County (Martin Evans, J.), entered on or about October 7, 1986, and December 5, 1986, which granted plaintiff leave to replead, are dismissed as moot, without costs.

This is one of numerous actions commenced against Arthur Andersen & Co., (hereinafter "Andersen"), an international firm of certified public accountants, for its allegedly fraudulent certifications of the 1973 through 1976 annual financial statements of Frigitemp Corporation, a public company that was engaged in the construction and installation of specialized equipment for use in shipbuilding, hospitals, hotels and restaurants. Plaintiff, Fidelity & Deposit Company of Maryland, (hereinafter "Fidelity"), is a surety company which had resumed writing surety bonds for Frigitemp, allegedly in reliance on Andersen's certifications of Frigitemp's financial statements. In March of 1978, Frigitemp filed a bankruptcy petition. In July of 1978, Andersen announced, in a letter to Frigitemp's Audit Committee, that Frigitemp's financial statements for the years 1973 through 1976 "may be materially misstated and should not be relied upon" and that Andersen was therefore "withdrawing [its] reports on the Company's financial statements for the Calendar years 1973 through 1976." In May of 1979, Frigitemp was adjudicated bankrupt. When it became known that some of Frigitemp's officers and directors had engaged in misappropriation of funds and misrepresentation of Frigitemp's financial status, several lawsuits were filed by various creditors against Frigitemp and Andersen.

Fidelity commenced this action against Andersen in late 1979. After various delays and after filing a second amended complaint, the action was assigned to Justice Evans. Andersen moved to dismiss Fidelity's second amended complaint, which raised claims of negligence and fraud. On the basis of Credit Alliance Corporation v. Arthur Andersen & Co., 66 N.Y.2d 812, 498 N.Y.S.2d 362, 489 N.E.2d 249, Justice Evans dismissed the negligence claim. He also dismissed the fraud claim with leave to replead due to plaintiff's failure to detail the circumstances of the fraud. Fidelity then filed a third amended complaint which Justice Evans also dismissed with leave to replead on September 30, 1986. Fidelity moved for a rehearing, and by order of November 26, 1986, the court granted rehearing but adhered to its decision to grant defendant's motion to dismiss. Plaintiff appeals from this order and defendant cross-appeals from so much of the orders of October 7, 1986, and December 5, 1986, as granted plaintiff leave to replead.

We find that the third amended complaint sufficiently states a cause of action in fraud. CPLR 3016 (subd. [b] ) requires that in an action for fraud the circumstances constituting the fraud shall be stated in detail. Our Court of Appeals has interpreted this provision as requiring "only that the misconduct complained of be set forth in sufficient detail to clearly inform a defendant with respect to the incidents complained of and is not to be interpreted so strictly as to prevent an otherwise valid cause of action in situations where it may be 'impossible to state in detail the circumstances constituting a fraud.' (Jered Contr. Corp. v. New York City Tr. Auth., 22 NY2d 187, 194 [292 N.Y.S.2d 98, 239 N.E.2d 197] )." Lanzi v. Brooks, 43 N.Y.2d 778, 780, 402 N.Y.S.2d 384, 373 N.E.2d 278. The third amended complaint accomplishes the result of informing defendant of the substance of plaintiff's claim and consists of much more than mere bare allegations of the elements of...