Credit Alliance Corp. v. Arthur Andersen & Co.
Court of Appeals of New York
483 N.E.2d 110 (N.Y. 1985)
This decision involves two consolidated appeals regarding accountants’ liability for negligently preparing financial reports. The first is Credit Alliance, where Arthur Andersen & Co. (Andersen) (defendant) prepared financial statements for L.B. Smith, who in turn furnished the reports to his lender, Credit Alliance Corp. (Credit Alliance) (plaintiff) for the purpose of getting a loan. Credit Alliance alleged that the statements were inaccurate. Smith did not hire Andersen to prepare the reports specifically for getting a loan or specifically to be reviewed by Credit Alliance, and there is no evidence that Andersen had any direct dealing with Credit Alliance. Credit Alliance brought suit against Andersen nonetheless for negligent preparation of the reports. Andersen filed a motion to dismiss the claim which was denied by the trial court. The denial was affirmed by the appellate court. Andersen appealed. The second appeal came from European American Bank & Trust Co. v. Strahs & Kaye. In Strahs & Kaye, Strahs & Kaye (S & K) (defendant) prepared financial reports for Majestic Electro Industries (Majestic). European American Bank (EAB) (plaintiff) relied on those financial reports to make substantial loans to Majestic. S & K knew that the primary, if not only reason it was hired to audit Majestic was to give the results to EAB. In addition, EAB and S & K communicated regularly to discuss Majestic’s financial situation. Subsequently, Majestic went bankrupt. EAB brought suit against S & K for negligently preparing the reports. The trial court dismissed the complaint. The appellate court reversed. S & K appealed.
Rule of Law
Holding and Reasoning (Jasen, J.)