Unadilla Silo Co. Inc. v. Ernst & Young
| Decision Date | 12 December 1996 |
| Citation | 651 N.Y.S.2d 216,234 A.D.2d 754 |
| Court | New York Supreme Court — Appellate Division |
| Parties | UNADILLA SILO COMPANY INC., Respondent, v. ERNST & YOUNG et al., Appellants, et al., Defendants. |
Ernst & Young, LLP (Bruce M. Cormier, Washington, D.C., of counsel), New York City, for appellants.
Hinman, Howard & Kattell (Albert J. Millus, Jr., of counsel), Binghamton, for respondent.
Before CARDONA, P.J., and WHITE, PETERS, SPAIN and CARPINELLO, JJ.
Appeal from an order of the Supreme Court (Ingraham, J.), entered January 18, 1996 in Otsego County, which denied a motion by defendants Ernst & Young, Ernst & Young LLP and Ernst & Young U.S. LLP to dismiss the complaint.
In early 1995, plaintiff learned that its chief financial officer, defendant Robert Hulbert, had embezzled $1.3 million between 1987 and 1994. Hulbert's defalcations went undetected despite the fact that defendant accounting firms, Ernst & Young and Ernst & Young LLP (hereinafter collectively referred to as Ernst & Young) 1 audited plaintiff's 1989 fiscal year financial statements and reviewed those pertaining to plaintiff's fiscal years ending in 1988, 1990, 1991, 1992, 1993 and 1994. To recover its pecuniary losses, plaintiff commenced this action on April 13, 1995 asserting, inter alia, causes of action against Ernst & Young sounding in malpractice and breach of contract. Instead of filing an answer, Ernst & Young elected to move to dismiss plaintiff's complaint against it pursuant to CPLR 3211(a)(1), (5) and (7). Supreme Court's denial of the motion prompted this appeal.
On a CPLR 3211(a)(7) motion, a court's sole inquiry is whether the facts alleged in the complaint fit within any cognizable legal theory, not whether the defendant has a defense (see, Leon v. Martinez, 84 N.Y.2d 83, 87-88, 614 N.Y.S.2d 972, 638 N.E.2d 511; Beltrone v. General Schuyler & Co., 223 A.D.2d 938, ----, 636 N.Y.S.2d 917, 918). Here, Ernst & Young did not challenge the sufficiency of plaintiff's causes of action; rather, it submitted evidentiary materials in support of its estoppel defense. Accordingly, since Supreme Court did not convert the motion into one for summary judgment, its denial of this aspect of Ernst & Young's motion was proper (see, Pietrosanto v. NYNEX Corp., 195 A.D.2d 843, 600 N.Y.S.2d 802). In any event, we note that the complaint is sufficient since whether the services rendered by Ernst & Young were either a review or an audit, it still had an obligation to exercise due care in the performance of its duties (see, Hall & Co. v. Steiner & Mondore, 147 A.D.2d 225, 228, 543 N.Y.S.2d 190).
To succeed on a motion under CPLR 3211(a)(1), a defendant must show that the documentary evidence upon which the motion is predicated resolves all factual issues as a matter of law and definitively disposes of the plaintiff's claim (see, Vanderminden v. Vanderminden, 226 A.D.2d 1037, 1039, 641 N.Y.S.2d 732, 735; Capital Wireless Corp. v. Deloitte & Touche, 216 A.D.2d 663, 665, 627 N.Y.S.2d 794). Here, the documentary evidence Ernst & Young relies upon are several "representation letters" it received from plaintiff. In these letters, plaintiff represented that "[t]here have been no irregularities, such as thefts, frauds, or defalcations, involving management or employees who have significant roles" in its internal operations. In addition, plaintiff acknowledged that it understood that Ernst & Young's "review cannot be relied upon to disclose errors, irregularities, or illegal acts, including fraud or defalcations, that may exist". Ernst & Young maintains that these representations and acknowledgements conclusively establish the defense of equitable estoppel.
Such a defense arises where a party makes (1) a false representation or conceals a material fact, (2) with the intention that the other party will act upon the false representation or concealment, and (3) knows the real facts (see, Matter of Hayden v. S & W Meat & Poultry, 221 A.D.2d 823, 824-825, 634 N.Y.S.2d 226). The representation letters standing alone fall short of establishing equitable estoppel for they do not conclusively show that plaintiff knew of Hulbert's defalcations when it issued the letters. Moreover, plaintiff's acknowledgement that it could not rely...
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