Statute of limitations bars third-party investors' claims.A Texas Court of Appeals ruled the discovery rule did not suspend the statute of limitations A type of federal or state law that restricts the time within which legal proceedings may be brought. Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. period when a nonclient filed a negligence suit against 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. KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm) KPMG Kaiser Permanente Medical Group KPMG Keiner Prüft Mehr Genau (German) KPMG Kommen Prüfen Meckern Gehen Peat Marwick performed a 1981 audit of Estoril Producing Corp., the managing partner of an oil and gas limited partnership with 43 investors formed in 1980. Through a series of complex transactions, Estoril sold itself the partnership's gas and then resold the gas at a higher price to Oklahoma Natural Gas Co. Additionally, Estoril entered into an agreement with Heritage Processing, Inc. in which Estoril acquired 10% of Heritage in return for processing the partnership's gas at Heritage's plant. Under the terms of the limited partnership agreement, Estoril was required to engage independent auditors Independent Auditor An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report. Notes: These auditors aren't affiliated with the company being audited. to render an annual audit. A dispute arose regarding Estoril's obligations to the limited partners. Estoril filed a declaratory judgment declaratory judgment In law, a judgment merely declaring a right or establishing the legal status or interpretation of a law or instrument. It is binding but is distinguished from other judgments or court opinions in that it includes no executive element (an order that action seeking the court's opinion on its obligations. The defendants included KPMG Peat Marwick. The limited partners alleged that Peat's performance in auditing Estoril's 1981 financial statements constituted negligence and gross negligence An indifference to, and a blatant violation of, a legal duty with respect to the rights of others. Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or . Specifically, the partners alleged Peat had a duty to report Estoril's activities with other entities as related-party transactions Related-Party Transaction A business deal or arrangement between two parties who are joined by a special relationship prior to the deal. For example, a business transaction between a major shareholder and the corporation, such as a contract for the shareholder's company to perform that were material in scope. Peat obtained summary judgment from the trial court, which the limited partners and Estoril appealed. On appeal, all parties agreed a two-year statute of limitations period applied to the case. The parties also acknowledged the limited partners' claim against Peat had accrued in 1982 and the action against Peat was not filed until 1989. At issue was whether the discovery rule applied and tolled the statute of limitations period until the parties reasonably could have discovered Peat's alleged negligent conduct. In ruling for Peat, the court found the discovery rule did not apply to a nonclient third party's claims against an auditor. The limited partners had presented no reason to find Estoril's financial dealings and Peat's alleged errors were inherently undiscoverable by the partners. As a matter of policy, the court ruled, an auditor was entitled to a point of repose beyond which claims for negligence were barred--especially when a nonclient filed suit against an auditor. (Brown v. KPMG Peat Marwick, 856 S.W. 2d 742) |
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