Malpractice Liability

In Cumis Ins. Soc’y, Inc. v. Tooke, 293 A.D.2d 794 (N.Y. App. Div. 3d Dep’t 2002), the court held that accounting malpractice or professional negligence contemplates a failure to exercise due care and proof of a material deviation from the recognized and accepted professional standards for accountants and auditors, generally measured by GAAP and GAAS promulgated by the American Institute of Certified Public Accountants, which proximately causes damage to plaintiff.  Earlier, a claim for breach of contract against accountants for failure to perform duties in accordance with generally accepted accounting principles stated only a claim in tort rather than in contract.[i] However, in Lincoln Grain, Inc. v. Coopers & Lybrand, 216 Neb. 433 (Neb. 1984), the court held that a negligent failure to observe reasonable care and competence is a tort as well as a breach of contract.

Once the plaintiff in an accounting malpractice case establishes a duty based on an accountant-client contract, the plaintiff  has the obligation to establish: (1) the accepted standard of accounting care or practice; (2) that the accountant’s conduct departed from that standard; and (3) that the accountant’s conduct was the legal cause of the injuries suffered.  When a plaintiff alleges a special relationship such as accountant client relationship as the basis for the defendant’s duty, the scope of that duty may be defined or limited by common-law principles such as reasonable care and foreseeabilityvof harm.[ii]

[i] In re Investors Funding Corp. Sec. Litig., 523 F. Supp. 533 (S.D.N.Y. 1980)

[ii] Mayorga v. Costco Wholesale Corp., 2007 U.S. Dist. LEXIS 5484 (D. Or. Jan. 24, 2007)

Inside Malpractice Liability