Rusch Factors, Inc. v. Levin

• Decision Date: 17 April 1968
• Docket Number: Civ. A. No. 3869.
• Citation: 284 F. Supp. 85
• Parties: RUSCH FACTORS, INC., Plaintiff, v. Leonard M. LEVIN, Defendant.
• Court: U.S. District Court — District of Rhode Island

284 F. Supp. 85

RUSCH FACTORS, INC., Plaintiff, v.Leonard M. LEVIN, Defendant.

Civ. A. No. 3869.

United States District Court D. Rhode Island.

April 17, 1968.

Michael A. Silverstein, Woonsocket, R. I., for plaintiff.

Bruce M. Selya, Providence, R. I., for defendant.

OPINION

PETTINE, District Judge.

This is a diversity action, pursuant to 28 U.S.C. § 1332, commenced by the plaintiff, a New York commercial banking and factoring corporation, against the defendant, a resident of Rhode Island and a public accountant certified in accordance with Title 5, Chapter 3, Section 5 of the General Laws of Rhode Island, 1956, as amended, 1962.The amount in controversy, exclusive of interest and costs, exceeds $10,000.

The facts are as follows.In late 1963 and early 1964 a Rhode Island corporation sought financing from the plaintiff.To measure the financial stability of the corporation the plaintif requested certified financial statements.The defendant accountant prepared the statements which represented the corporation to be solvent by a substantial amount.In fact, the corporation was insolvent.On or before February 10, 1964, the corporation submitted the statements to the plaintiff.The plaintiff relied upon the statements and loaned the corporation a sum in excess of $337,000.00.Subsequently, the corporation went into receivership, and the plaintiff has been able to recover only a portion of the amount loaned to the corporation.

The plaintiff complains that it has been injured in an amount in excess of $121,000.00 as a result of its reliance upon the fraudulent or negligent misrepresentations in the financial statements certified by the defendant accountant.The defendant has moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), on two grounds: (1) that the Rhode Island statute of limitations for personal injuries or injuries by spoken word, Title 9, Chapter 1, Section 14 of the General Laws of Rhode Island, 1956, bars the plaintiff's action; or (2) that the absence of privity of contract between the defendant accountant and the plaintiff reliant party is a complete defense.In the alternative, the defendant has moved for a more definite statement pursuant to Fed.R.Civ.P. 12(e).

MOTION TO DISMISS

The Statute of Limitations:

A federal court whose jurisdiction is predicated upon diversity of citizenship must apply the substantive law of the state in which it sits.Erie R. R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188.For purposes of the Erie doctrine, the law relating to limitation of actions is substantive.Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079.Thus, this Court must look to the Rhode Island statutes of limitations.¹

As recited in the complaint, the acts complained of were committed no later than February 10, 1964, and as reflected by the court records, this action was commenced approximately two years and eleven months later, on December 5, 1967.If, as the defendant asserts, this action falls within Title 9, Chapter 1, Section 14 of the Rhode Island General Laws, 1956,² the one-year statute of limitations for injuries by spoken words and two-year statute for injuries to the person, then the plaintiff is barred.If, however, as the plaintiff argues, this action falls within Title 9, Chapter 1, Section 13 of the Rhode Island General Laws, 1956, as amended, 1965,³ the six-year general statute of limitations for all injuries not otherwise specified, then the plaintiff is not barred.The issue as crystallized is, then, whether pecuniary loss wrought by reliance upon a fraudulent or negligent misrepresentation is either injury by spoken words or personal injury within the meaning of Title 9,Chapter 1, Section 14 of the Rhode Island General Laws, 1956.

Since this is a question of first impression in Rhode Island it must be established by a process of informed conjecture how the Rhode Island Supreme Court would rule if the issue were presented to it for determination.Clearly this is not an action for "words spoken."Whether that portion of the statute should be read to include both libelous statements and oral misrepresentations is a question this Court need not determine.On its face, the statute includes only actions which concern oral statements.By implication, written misrepresentations are excluded.Since the misrepresentations complained of in the instant case were the written computations and certifications of the defendant accountant, the "words spoken" portion of Title 9, Chapter 1, Section 14 is inapplicable.

Nor is this action one for injuries to the person.Generally, actions for fraudulent or negligent misrepresentation resulting in pecuniary loss are classified as property damage actions because the injury consists in a diminution of the reliant party's estate.See, e. g., Guggisberg v. Boettger, 139 Minn. 226, 166 N.W. 177;In Re Harper, 175 F. 412, 420;Phipps v. Wright, 28 Ga. App. 164, 110 S.E. 511;Side v. Thompson, Sup., 205 N.Y.S.2d 240.See generally34 Am.Jur.Limitation of Actions§ 100(1941).It could be argued, however, that pecuniary loss resulting from misrepresentation is not property damage, as that category is limited to damage to tangible real or personal property.This Court deems both fruitless and mechanical an inquiry into the reasonability of classifying an action in misrepresentation as either a personal injury or a property damage action.The proper inquiry, the inquiry mandated by the Rhode Island statutory scheme relating to limitation of actions, is only whether the plaintiff has been injured in his person, Title 9, Chapter 1, Section 14, or in some other unspecified manner, Title 9, Chapter 1, Section 13.

In this regard, the controlling precedent is Commerce Oil Refining Corporation v. Miner, 98 R.I. 14, 199 A.2d 606.In that case the Rhode Island Supreme Court characterized an injury perpetrated by malicious use of process as an injury to the person.The Court stated at p. 610:

It is then our conclusion that the phrase `injuries to the person' as used in the instant statute is to be construed comprehensively and as contemplating its application to actions involving injuries that are other than physical.Its purpose is to include within that period of limitation actions brought for injuries resulting from invasions of rights that inhere in man as a rational being, that is, rights to which one is entitled by reason of being a person in the eyes of the law.Such rights, of course, are to be distinguished from those which accrue to an individual by reason of some peculiar status or by virtue of an interest created by contract or property.(Emphasis added.)

What do we have in the case at bar?It is certainly not an invasion of the plaintiff's rational integrity.Really, it is nothing more or less than an invasion of the plaintiff's pocketbook.The complaint rests on the theory that the plaintiff advanced funds to the defendant's client which upon the insolvency of the client became lost to the plaintiff.This is far removed from the invasion of personal rights referred to in the Commerce Oil case.This Court determines that pecuniary loss resulting from reliance upon fraudulent or negligent misrepresentations is not an injury to the person within the meaning of Title 9, Chapter 1, Section 14 of Rhode Island General Laws, 1956.Therefore, the applicable statute is Title 9, Chapter 1, Section 13 of Rhode Island General Laws, 1956, as amended, 1965, the general six-year statute of limitations.The defendant's motion to dismiss with respect to the statute of limitations is denied.

The Privity Defense

As the Court noted, supra, a federal court whose jurisdiction is predicated upon diversity of citizenship must apply the substantive law of the state in which it sits.Erie R. R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188.For the purposes of the Erie doctrine, state choice of laws principles are substantive, and thus must be applied.Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477.If, then, there were a conflict between the law of Rhode Island, the place of the making of the misrepresentation by the defendant, and New York, the place of the plaintiff's reliance and consequent loss, it would be necessary for the Court to determine, under Rhode Island choice of laws principles,⁴ whether the law of Rhode Island or that of New York, relating to the scope of an accountant's responsibilities, should be applied.But there is no such conflict of laws.New York law relating to the scope of liability for intentional or negligent wrongdoing is grounded on the same theory of risk distribution as is Rhode Island law.See, e. g., Pastorelli v. Associated Engineers, Inc., D.C., 176 F.Supp. 159, 164.Admittedly, the New York body of law is more quantitatively developed than is its Rhode Island counterpart, with respect to the scope of a negligent or fraudulent misrepresenter's responsibilities.This is to be expected, given the concentration of population and hence the proliferation of legal activity in New York.But the basic theory is the same.This Court decides that a Rhode Island court would perceive the absence of conflict between the two jurisdictions, both of which would, in a determination of the issues in the instant case, look to the entire Anglo-American body of law relating to the scope of a negligent or fraudulent misrepresenter's obligations.⁵SeeTraynor, Is This Conflict Really Necessary, 37 TexasL.Rev. 657, 665, 673(1959).The Court therefore proceeds to a consideration of the case law relating to the scope of liability for fraudulent or negligent misrepresentation.

Privity of contract is clearly no defense in a fraud action.An intentionally misrepresenting accountant is liable to all those persons whom he should reasonably have foreseen would be injured by his misrepresentation.Ultramares v. Touche & Co., 255 N.Y. 170, 174 N.E. 441, 74 A.L.R....