KITCHENS OF OCEANS, INC. v. McGladrey & Pullen, LLP

Citation832 So.2d 270
Decision Date11 December 2002
Docket NumberNo. 4D01-3758.,4D01-3758.
PartiesKITCHENS OF THE OCEANS, INC. and Albert F. Margus, Jr., Appellants, v. McGLADREY & PULLEN, LLP, an Iowa limited liability partnership, Michael A. Balter, an individual, and Salvatore Catanese, an individual, Appellees.
CourtCourt of Appeal of Florida (US)

I. Jeffrey Pheterson and Peter H. Schmidt of Schmidt, Pheterson & Bleau, Boca Raton, for appellants.

Ronald B. Ravikoff and Thierry Olivier Desmet of Zuckerman Spaeder, LLP, Miami, and Robert R. Watson Sidley, Austin, Brown & Wood, Chicago, Illinois, for appellees.

FARMER, J.

This case involves a claim by a client against an accounting firm (auditors) for negligence in its audit of certain financial statements. The trial court granted the auditor's motion to dismiss the claim for failure to state a cause of action. We reverse.

The auditors first argued that the engagement agreement's hold harmless provision barred the client's claim for breach of contract. We disagree.

The engagement agreement provided that auditors would perform as follows:

"We will conduct the audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement whether caused by error, fraudulent financial reporting, or misappropriation of assets.
...
"An audit also includes obtaining an understanding of internal control sufficient to plan the audit and to determine the nature, timing and extent of audit procedures to be performed."
The agreement also added that:
"As you know, management is responsible for (1) the preparation of [client's] financial statements, (2) establishing and maintaining effective internal control over financial reporting and safeguarding assets, (3) properly recording transactions in the records, (4) identifying and ensuring that [client] complies with the laws and regulations applicable to its activities, and (5) making all financial records and related information available to us and (6) for adjusting the financial statement to correct material misstatements."

The complaint accuses the auditors of negligence and breach of contract in planning and designing the audit for client's particular business and, thereby, failing to detect an ongoing embezzlement scheme by client's controller.

The hold harmless provision relied on by the auditors states:

"[Client] hereby indemnifies [auditors] and its partners and employees and holds them harmless from all claims, liabilities, losses, and costs arising in circumstances where there has been a knowing misrepresentation by a member of [client's] management, regardless of whether such person was acting in [client's] interest. This indemnification will survive termination of this letter."
In Cox Cable Corp. v. Gulf Power, 591 So.2d 627, 629 (Fla.1992), the court explained that contracts of indemnification which attempt to indemnify a party against its own wrongful acts are viewed with disfavor in Florida and will be enforced only if they express an intent to indemnify against the indemnitee's own wrongful acts in clear and unequivocal terms. See also Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equip. Co., 374 So.2d 487, 489 (Fla.1979) (provision requiring lessor of scaffolding from manufacturer to assume "all responsibility for claims asserted by any person whatever growing out of the erection and maintenance, use or possession of said equipment" and to hold harmless from all such claims held insufficient to provide indemnity for manufacturer's own negligence). Univ. Plaza Shopping Ctr., Inc. v. Stewart, 272 So.2d 507, 508-09 (Fla.1973) ("we choose to follow the rationale ... requiring a specific provision protecting the indemnitee from liability caused by his own negligence."); and we do not read this provision of the engagement agreement to state in "clear and unequivocal" terms an intent that the auditors were being indemnified for their own negligence in failing to detect a defalcation by one of the client's management.

Although there is a difference between contracts of indemnification and hold-harmless agreements, we deem the central holding of the above cases to apply as well to a hold harmless agreement that, as here, functions much like an indemnification agreement. As one court has explained:

"Although there is a distinction in definition between an exculpatory clause and an indemnity clause in a contract, they both attempt to shift ultimate responsibility for negligent injury, and so are generally construed by the same principles of law. An exculpatory clause purports to deny an injured party the right to recover damages from the person negligently causing his injury. An indemnification clause attempts to shift the responsibility for the payment of damages to someone other than the negligent party (sometimes back to the injured party, thus producing the same result as an exculpatory provision)."

O'Connell v. Walt Disney World Co., 413 So.2d 444, 446 (Fla. 5th DCA 1982); see, e.g., Van Tuyn v. Zurich Am. Ins. Co., 447 So.2d 318, 320 (Fla. 4th DCA 1984) (explaining that if an exculpatory clause is to be effective it must clearly state that it releases the party from liability for its own negligence).

We therefore find that...

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11 cases
  • Ucf Athletics Ass'n Inc. v. Plancher
    • United States
    • Court of Appeal of Florida (US)
    • 6 September 2013
    ...a person negligently causing his injury. Cain v. Banka, 932 So.2d 575 (Fla. 5th DCA 2006) (citing Kitchens of the Oceans, Inc. v. McGladrey & Pullen LLP, 832 So.2d 270 (Fla. 4th DCA 2002)). They are disfavored in the law because they relieve one party of the obligation to use due care and s......
  • UCF Athletics Ass'n Inc. v. Plancher
    • United States
    • Court of Appeal of Florida (US)
    • 16 August 2013
    ...a person negligently causing his injury. Cain v. Banka, 932 So. 2d 575 (Fla. 5th DCA 2006) (citing Kitchens of the Oceans, Inc. v. McGladrey & Pullen LLP, 832 So. 2d 270 (Fla. 4th DCA 2002)). They are disfavored in the law because they relieve one party of the obligation to use due care and......
  • Cain v. Banka
    • United States
    • Court of Appeal of Florida (US)
    • 30 June 2006
    ...to deny an injured party the right to recover damages from a person negligently causing his injury. Kitchens of the Oceans, Inc. v. McGladrey & Pullen LLP, 832 So.2d 270 (Fla. 4th DCA 2002). Exculpatory clauses are disfavored and are enforceable only where and to the extent that the intenti......
  • Elalouf v. Sch. Bd. of Broward Cnty.
    • United States
    • Court of Appeal of Florida (US)
    • 6 January 2021
    ...an injured party the right to recover damages from the person negligently causing his injury." Kitchens of the Oceans, Inc. v. McGladrey & Pullen, LLP , 832 So. 2d 270, 272 (Fla. 4th DCA 2002) (quoting O'Connell v. Walt Disney World Co. , 413 So. 2d 444, 446 (Fla. 5th DCA 1982) ). "Exculpat......
  • Request a trial to view additional results
1 books & journal articles
  • Indemnity actions
    • United States
    • James Publishing Practical Law Books Florida Causes of Action
    • 1 April 2022
    ...the injured party, thus producing the same result as an exculpatory provision). Kitchens of the Oceans, Inc. v. McGladrey & Pullen, LLP , 832 So.2d 270, 272 (Fla. 4th DCA 2002). 3. Express Contract Unnecessary: The obligation to indemnify need not be based upon an express contract of indemn......

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