New York court declines jurisdiction over Virginia accountant.

The U.S. District Court for the Southern District of New York declined to exercise jurisdiction over a case brought by the New York office of a foreign bank against a Virginia-based accounting firm.

The United Bank of Kuwait, PLC, sued the accounting firm James M. Bridges, Ltd., after one of Bridges's audit clients--Southern Atlantic Mortgage, Inc.--defaulted on a loan issued to it by the bank. The bank sought to have the case tried in the Supreme Court for the State of New York, County of New York. Bridges moved to have the case dismissed from the New York court, claiming it lacked personal jurisdiction over him.

In ruling in Bridges's favor, the court held when a client does not inform an accountant of an audit's purpose in the engagement letter, there is no reasonable basis for the accountant to expect to be summoned into a foreign jurisdiction.

To rule that Bridges knew or should have known that audit errors would have consequences to the Bank of Kuwait simply because the bank was a creditor of Bridges's client would render accountants subject to jurisdiction wherever creditors of a client are located. This, the court found, is manifestly unreasonable. (United Bank of Kuwait v. James M. Bridges, Ltd., 776 F. Supp. 112)

Edited by Wayne J. Baliga, CPA, JD, vice-president, AON Corp.