CHAIKOVSKA LLC v. ERNST YOUNG LLP

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Supreme Court, Appellate Division, Fourth Department, New York.

Marta CHAIKOVSKA and Creek Ventures, LLC, Plaintiffs-Respondents, v. ERNST & YOUNG, LLP, Defendant-Appellant.

Decided: September 30, 2005

PRESENT:  SCUDDER, J.P., MARTOCHE, SMITH, PINE, AND HAYES, JJ. Hodgson Russ LLP, Buffalo (Robert J. Lane, Jr., of Counsel), for Defendant-Appellant, and Ernst & Young, LLP, New York, for Defendant-Appellant Pro Se. Blair & Roach, LLP, Tonawanda (Larry Kerman of Counsel), for Plaintiffs-Respondents.

In this accounting malpractice action, Supreme Court properly denied defendant's motion pursuant to CPLR 3211 insofar as it sought dismissal of that part of the fraud cause of action asserted by Marta Chaikovska (plaintiff) and the causes of action for negligence and indemnification asserted by both plaintiffs.   Defendant contends that the court should have dismissed the negligence cause of action because there are insufficient allegations that there was either the requisite direct contractual relationship between plaintiffs and defendant or that “there was the [requisite] functional equivalent of privity” between plaintiffs and defendant (Parrott v. Coopers & Lybrand, 95 N.Y.2d 479, 482, 718 N.Y.S.2d 709, 741 N.E.2d 506), and thus that defendant had no duty to act in a nonnegligent manner toward plaintiffs.   We reject that contention.

 “Before accountants may be held liable in negligence to noncontractual parties who rely to their detriment on inaccurate financial reports, certain prerequisites must be satisfied:  (1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes;  (2) in the furtherance of which a known party or parties was intended to rely;  and (3) there must have been some conduct on the part of the accountants linking them to that party or parties, which evinces the accountants' understanding of that party or parties' reliance” (Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 551, 493 N.Y.S.2d 435, 483 N.E.2d 110).  “ ‘In assessing a motion under CPLR 3211(a)(7), ․ a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint’ ” (Gibraltar Steel Corp. v. Gibraltar Metal Processing, 19 A.D.3d 1141, 1142, 796 N.Y.S.2d 814, quoting Leon v. Martinez, 84 N.Y.2d 83, 88, 614 N.Y.S.2d 972, 638 N.E.2d 511), and the allegations in the complaint and the affidavits submitted in opposition to the motion to dismiss must be accepted as true and given every favorable inference (see Leon, 84 N.Y.2d at 87-88, 614 N.Y.S.2d 972, 638 N.E.2d 511).   Viewed in that light, we conclude that the allegations in the complaint and plaintiff's opposing affidavit satisfy the three prongs of the Credit Alliance test, which concerns the existence of the functional equivalent of privity, and thus are sufficient to withstand defendant's motion with respect to the negligence cause of action.   In addition, we note with respect to actual privity of contract that plaintiffs have sufficiently alleged that defendant had a duty to act in a nonnegligent manner toward plaintiff because plaintiff was known to defendant to be a limited partner of one of the companies to which it was contractually obligated to furnish the report at issue (see White v. Guarente, 43 N.Y.2d 356, 361-362, 401 N.Y.S.2d 474, 372 N.E.2d 315;  see also Credit Alliance, 65 N.Y.2d at 550 n. 9, 493 N.Y.S.2d 435, 483 N.E.2d 110;  cf. Parrott, 95 N.Y.2d at 484-485, 718 N.Y.S.2d 709, 741 N.E.2d 506).

 Contrary to defendant's further contention, the claims of gross negligence and recklessness in that part of the fraud cause of action asserted by plaintiff are sufficiently particularized to satisfy CPLR 3016(b) (cf. Credit Alliance, 65 N.Y.2d at 554, 493 N.Y.S.2d 435, 483 N.E.2d 110).   The allegations in the complaint are sufficient to “identify the particular manner in which an item included in the financial statement relied upon has been intentionally or recklessly misrepresented” (Lampert v. Mahoney, Cohen & Co., 218 A.D.2d 580, 582, 630 N.Y.S.2d 733;  see Foothill Capital Corp. v. Grant Thornton, L.L.P., 276 A.D.2d 437, 715 N.Y.S.2d 389).

We have considered defendant's remaining contentions and conclude that they are without merit.   Plaintiffs failed to perfect their cross appeal within nine months of service of their notice of cross appeal.   Thus, their cross appeal has been deemed abandoned and dismissed (see 22 NYCRR 1000.12[b] ).

It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously affirmed without costs.

MEMORANDUM: