Wagenheim v. Alexander Grant & Co.
| Decision Date | 15 December 1983 |
| Docket Number | 82AP-1040,Nos. 82AP-1039,s. 82AP-1039 |
| Citation | 19 OBR 71,19 Ohio App.3d 7,482 N.E.2d 955 |
| Parties | , 19 O.B.R. 71 WAGENHEIM, Appellee, v. ALEXANDER GRANT & COMPANY, Appellant. * CONSOLIDATA SERVICES, INC., Appellee, v. ALEXANDER GRANT & COMPANY, Appellant. |
| Court | Ohio Court of Appeals |
Syllabus by the Court
1. It is implied in every contractual relationship between an accountant and his client that a general duty exists not to make extra-judicial disclosures of information acquired in the course of their professional relationship, and that a breach of that duty by an accountant may give rise to a cause of action.
2. A client should be entitled to freely disclose information concerning his financial status to his accountant without fear that such information will be exposed to the public. This is not to say, however, that a client enjoys an absolute right, but rather that he possesses a limited right against such a disclosure, subject to exceptions prompted by the supervening interests of the public.
3. Ohio recognizes no statutory or common-law privilege prohibiting an accountant from revealing in a court of justice information acquired during an accountant-client relationship. However, the absence of any accountant-client privilege does not deny a cause of action to the client for the non -judicial disclosure of confidential information obtained during their association.
4. A contractual relationship exists between an accountant and his client and, as such, an accountant's liability to his client is determined by the extent of their contractual relationship and the duties imposed by law upon accountants.
5. As in the legal profession, the relationship that an accountant establishes with his client does not cease merely because the specific services provided at that time have been completed.
6. The State Accountancy Board has promulgated its own code of professional conduct (Ohio Adm.Code Chapter 4701-11), and with the recognition of those duties therein expressed comes the recognition that such conduct is expected by the public.
7. R.C. 4701.19 expresses the policy of this state that information contained within the written materials prepared by an accountant for his client may not be relinquished by the sale or transfer of these documents without the prior consent of the client.
8. Based upon the reasonable expectations of the parties involved, and the public policy against such action, a duty is imposed by law upon an accountant not to wrongfully disclose information given to him in confidence by his client.
9. Although the duty of confidentiality implied in an accountant-client relationship is favored, such duty is not absolute. Overriding public interests may exist to which confidentiality must yield.
10. It cannot reasonably be implied from the relationship of an accountant and his client that merely because of their association an accountant may be held liable for actions taken in regard to other business transactions in which he is involved that consequently may expose that client to loss or inquiry.
11. An accountant is not liable for the injuries allegedly sustained by a third party as a result of his breach of duty of confidentiality owed to one of his clients.
12. Proof that the alleged misconduct of a defendant resulted from the advice of counsel is recognized as a mitigating factor when dealing with punitive damages.
13. In considering whether specific portions of the trial court's instructions complained of were improper, the instructions as a whole must be reviewed. However, even if reversible error is found in the charge, it must also be shown that the substantial rights of the party complaining of the charge have been directly affected and to his prejudice before a reversal can be justified.
14. When an established and ongoing business is wrongfully injured or destroyed, the correct rule for determining the recovery is the difference between the value of the business before and after its injury or destruction.
15. All preliminary questions under Evid.R. 104(A) concerning the qualifications of a person to be a witness are to be determined by the court.
16. An expert's interpretation of the law should not be permitted as testimony, as the interpretation of the law is within the sole province of the court.
Isaac, Graham & Nester and Frederick M. Isaac, Columbus, for appellee Joel S. Wagenheim.
Strip, Fargo, Schulman & Hoppers Co., L.P.A., and A.C. Strip, Columbus, for appellee Consolidata Services, Inc.
Chester, Hoffman & Willcox, Richard C. Addison, Keith McNamara, Columbus, Mayer, Brown & Platt, Watson B. Tucker, Stanley J. Parzen and Hope G. Nightingale, Chicago, Ill., for appellant Alexander Grant & Co.
The defendant, Alexander Grant & Company, brings this appeal from the trial court's denial of its motion for judgment notwithstanding the verdict and/or new trial, in favor of both plaintiffs, Consolidata Services, Inc., and Joel Wagenheim. The cases of Joel Wagenheim v. Alexander Grant & Company (case No. 82AP-1039) and Consolidata Services, Inc. v. Alexander Grant & Company (case No. 82AP-1040) were consolidated for trial and tried to a jury on September 22, 1981.
Consolidata Services, Inc. (hereinafter referred to as "CDS"), was established in Ohio in 1970 by plaintiff Joel S. Wagenheim and initially was created to provide bookkeeping services to small and medium-sized businesses. Later, it expanded its operations and commenced handling company payroll distributions. CDS continued to provide payroll services until it was forced into receivership in February 1978. Wagenheim was also the co-signer or guarantor on a variety of notes on behalf of CDS. Even though he later relinquished all control in the corporation in 1976, Wagenheim maintained a security interest in the stock of CDS as collateral for the sale of his ownership interest, and remained available as a consultant to the management of CDS.
With each new payroll client of CDS, it was initially required that a deposit be given to insure that there would always be a sufficient amount of money to cover the payroll checks distributed should the cash advanced for each month be delayed. The deposits were not kept separately, and the service contracts specifically provided that the customers had no right to any interest on the deposit while it was held by CDS. Also, the contracts placed no restrictions on the use of the deposits by CDS except that, upon termination of their contractual relationship, the deposits would be returned within thirty days.
Alexander Grant & Company (hereinafter called "Alexander Grant"), the defendant, is a major accounting firm that provided tax and other business-related services to both CDS and Wagenheim. Many of the clients who used CDS's payroll services were also clients of Alexander Grant (hereinafter referred to as "mutual clients") and, in fact, many had chosen Alexander Grant upon the recommendation of CDS and vice versa.
On January 23, 1978, a meeting was held between several representatives from Alexander Grant and the president of CDS, Tom Ryan, to discuss an outstanding debt owed by CDS to the defendant for past services and to discuss arrangements for the rest of the year. At the meeting, Ryan provided the representatives with a financial statement from CDS for the latter part of 1977 showing its financial status. From the statement, Alexander Grant's accountants determined that CDS was $150,000 short of cash in its payroll accounts based upon the payroll funds received and amounts owed as shown in the statement. Acting on the advice of their in-house counsel, the accountants from Alexander Grant contacted Ryan and asked that CDS immediately disclose its cash flow problems to its clients before any further funds were received. Ryan refused to make the disclosure and suggested that Wagenheim be contacted and advised of the problem.
On February 6, 1978, another meeting was held between the Alexander Grant representatives and Ryan, but this time with Wagenheim also present. At the meeting, the representatives from Alexander Grant again insisted that the disclosure be made. Wagenheim refused to authorize the disclosure and asked Alexander Grant not to do so. Wagenheim also asked that he be given some time to formulate a plan to raise the missing money, and that if it later became necessary, he personally would notify the clients of the problem. It is unclear from the testimony whether the defendant actually agreed to wait and give the plaintiffs some additional time to solve the problem of the money deficiency. Soon after the meeting, Ryan, at the advice of his counsel, resigned as the sole officer and director of CDS.
The next day, without notifying either Wagenheim or anyone at CDS, the defendant began to call its mutual clients and advise them not to send additional payroll funds to CDS, and to retain their payroll records. Several other mutual clients who had no funds on deposit with CDS were also called. Some of those contacted called CDS to inquire why such advice had been given by defendant and were then told that CDS had a cash flow problem but was attempting to devise a solution. Most of the clients refused to continue their relationship with CDS and, subsequently, cancelled their contracts. Ten days after the phone calls were made, CDS terminated its operations and closed down its office. There was no evidence presented that prior to the phone calls CDS had never failed to fulfill its payroll obligations to its clients or had ever been unable to return any of its customers' deposits. On February 9, 1978, the plaintiffs each received a letter from the defendant stating that Alexander Grant was terminating their relationship and that its accounting services would no longer be provided in the future.
On February 6, 1979, both Wagenheim and CDS filed their respective complaints against the defendant. Their consolidated cases...
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