New York appellate court expands liability for review services.A New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. ruled that a third party could sue a CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. firm that performed services for a client. In this case, the accounting firm performed bookkeeping and review services for its client, Globe Office Supply, Inc. Bank of Tokyo, a creditor of the company, alleged it agreed to extend credit to Globe based on financial statements prepared by the CPA firm. Globe subsequently went bankrupt. The bank brought suit against the accounting firm, alleging it relied to its detriment on the financial statements in extending credit to Globe and that the financial statements negligently misrepresented Globe's financial status. The accounting firm filed a motion to dismiss the claim, arguing the bank was not in privity A close, direct, or successive relationship; having a mutual interest or right. Privity refers to a connection or bond between parties to a particular transaction. Privity of contract is the relationship that exists between two or more parties to an agreement. with it and therefore could not sustain an action against it. The trial court held there was privity because the accountants performed internal accounting services for Globe. On appeal, the appellate court said an accountant who performed write-up services for a client was a de facto [Latin, In fact.] In fact, in deed, actually. This phrase is used to characterize an officer, a government, a past action, or a state of affairs that must be accepted for all practical purposes, but is illegal or illegitimate. employee of that client. Accordingly, the firm did not act as independent accountants for Globe but, rather, served as internal accountants. Its staff's status as de facto employees established privity and allowed the bank to sue the firm for negligence. (Bank of Tokyo v. Saul N. Friedman, Appellate Division, First Department of the New York State Supreme Court) |
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