Machata v. Seidman & Seidman
| Decision Date | 05 October 1994 |
| Docket Number | No. 93-0006,93-0006 |
| Citation | 644 So.2d 114 |
| Parties | 19 Fla. L. Weekly D2138 Andrew MACHATA, John Nicolo and Paul J. Meyerhoff, Appellants, v. SEIDMAN & SEIDMAN a/k/a BDO Seidman & Company, Appellees. |
| Court | Florida District Court of Appeals |
David, Isaacs & Yeargin, P.A., West Palm Beach, for appellants.
Richard E. Brodsky of Jenner & Block, Miami, for appellees.
Edward A. Marod of Edward A. Marod, P.A., West Palm Beach, for amicus curiae-The Florida Institute of Certified Public Accountants.
Michael J. Pucillo and Wendy H. Zoberman of Greenfield & Chimicles, West Palm Beach, for amicus curiae-The Academy of Florida Trial Lawyers.
In this ever changing world in which we live, we encounter yet another attempt to expand liability. Is an accountant liable to the shareholders of a corporation, who participate in stock transactions in reliance upon an Audit Report and Audited Financial Statements prepared by the accountant? Based upon the Florida Supreme Court's decision in First Florida Bank, N.A. v. Max Mitchell & Co., 558 So.2d 9 (Fla.1990), and its adoption of section 552 of the Restatement (Second) of Torts (1976), we decline to expand the accountant's liability to the specific facts of this case. See also Applestein v. Deloitte Haskins & Sells, 637 So.2d 349 (Fla. 3d DCA 1994).
The plaintiffs in this case are shareholders of First American Bank & Trust. The defendant is the accounting firm that audited the Bank's financial statements. The Bank disseminated its audited financial statements and audit reports to its shareholders and to members of the public interested in purchasing stock. The plaintiffs alleged that the accounting firm was negligent in failing to discover false representations in the financial statements. In reliance upon these statements, the plaintiffs acquired stock, which became worthless when the Bank became insolvent. The trial court dismissed the negligence counts in the initial, Amended, and Second Amended Complaint. From the dismissal of the negligence counts in the Second Amended Complaint, the plaintiffs appeal. 1
Over the past decades, the accounting profession has repeatedly found itself the target in litigation arising out of business failures. As our economy continues to experience highs and lows, rapid growth and plummeting disasters, those unfortunate enough to have been involved with the disasters have looked to the financially secure accountant to recoup their losses. The targeting of the accountant has no doubt resulted from the poor financial condition of the primary player in the financial loss, the business entity which has folded, gone bankrupt, or has failed to live up to the expectations of the plaintiff. In most instances, the accountant has been a second string player, someone who has relied upon information provided by the primary player, the failing business, to generate information for distribution. It is for this reason that the scope of the accountant's liability has been restricted to the scope of its undertaking.
There is no magic recipe that will insure protection for everyone who may rely upon the information generated by the accountant. And, it is the courts, which must bear the responsibility for setting the limits of liability. Our supreme court has assumed that responsibility. It has adopted section 552 of the Restatement. First Florida Bank, N.A. v. Max Mitchell & Co., 558 So.2d 9 (Fla.1990). In doing so, it examined and evaluated the following four limits of liability.
(1) Except in cases of fraud, an accountant is only liable to one with whom he is in privity or near privity. (Citations omitted).
(2) An accountant is liable to third parties in the absence of privity under the circumstances described in Section 552, Restatement (Second) of Torts (1976)....
(3) An accountant is liable to all persons who might reasonably be foreseen as relying upon his work product (Citations omitted).
(4) An accountant's liability to third persons shall be determined by the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection...
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