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Nycal Corporation v. KPMG Peat Marwick LLP.

Supreme Judicial Court of Massachusetts
688 N.E.2d 1368 (1988)


Gulf Resources & Chemical Corporation (Gulf) retained KPMG Peat Marwick LLP (KPMG) (defendant) to audit its financial statements. The audit report KPMG prepared was included in Gulf’s annual report, which later became available to the public. Nycal Corporation (Nycal) (plaintiff) purchased a large number of Gulf shares, allegedly in reliance on KPMG’s audit report, giving Nycal operating control of Gulf. KPMG did not know of the transaction between Gulf and Nycal until a few days prior to its closing. Gulf later filed for bankruptcy, making Nycal’s investment worthless. Nycal brought suit against KPMG, claiming that its audit report negligently misrepresented Gulf’s financial condition. The Superior Court dismissed KPMG on summary judgment, finding that it did not breach any duty owed to Nycal under the liability standard found in § 552 of the Restatement (Second) of Torts. The parties applied for direct appellate review by this court.

Rule of Law


Holding and Reasoning (Greaney, J.)

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