One of the defining characteristics of professional malpractice, which differs from negligence as a whole, is the concept of privity.  If a washing machine is negligently designed, anyone hurt in using the machine can sue.  However, in professional and legal malpractice one may sue only those with whom they have a professional relationship, one of “privity.”

Prime Plus Acquistition Corp. v Eisneramper LLP  2015 NY Slip Op 32336(U)  December 10, 2015  Supreme Court, New York County  Docket Number: 651139/2014  Judge: Shirley Werner Kornreich is an example of this problem in an auditing case.  Besides statute of limitations and reasonable reliance in a fraud setting problems, the entire malpractice case was dismissed for lack of a professional relationship between plaintiff and defendant.  This dismissal takes place in a case with $ 25 Million in damages.

“Regardless of whether some of plaintiffs’ malpractice claims are time barred, all of the malpractice claims fail on the merits. EisnerAmper’s client was Oak Rock, not plaintiffs. As discussed in the IDB Decision: Before accountants may be held liable in negligence to noncontractual parties who rely to their detriment on inaccurate financial reports, certain prerequisites must be satisfied: (1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there must have been some conduct on the part of the accountants linking them to that party or parties, which evinces the accountants’ understanding of that party or parties’ reliance. Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 551 ( 1986). Plaintiffs cannot maintain a malpractice claim against EisnerAmper because they do not plead the requisite linking conduct. Oasis does not allege that it had any direct contact with EisnerAmper. The only alleged direct communication between Prime and EisnerAmper was a single conversation between Dell and Charles Weinstein, an Eisner Am per partner. That alleged conversation took place in 200 I. The first audit at issue in this action did not occur until 2006. Five years beforehand, in 2001, Weinstein was seeking to convince Dell to make Prime’s initial investment in Oak Rock, and he allegedly told Dell that he could rely on EisnerAmper’s audit reports. This statement, allegedly made almost a decade prior to the 2010 Transactions, is insufficient to show that EisnerAmper knew the subject audits would be used for the “particular purpose” at issue here – the 2010 Transactions.

Absent a nexus between a communication and the subject transaction, the mere e~istence \ f of some prior communication between an accountant and an investor will not give rise to~ # relationship “sufficiently approaching privity.” See Sec. Pac. Bus. Credit, Inc. v Peat MJrwick 12 t [* 12] Main & Co., 79 NY2d 695, 702-08 (1992). Near privity is not present here because no one at EisnerAmper is alleged to have told Prime it was entitled to rely on the 2007 and 2008 audit reports attached to the November 4, 2009 offering memorandum. As a result, there is no conduct linking Prime and EisnerAmper to the 20 I 0 Transactions.

Moreover, Dell’s reliance on his 2001 conversation with Weinstein flies in the face of the express terms of EisnerAmper’s engagement letters, which clearly state that the audits are prepared only for the benefit of Oak Rock, i.e., not its members. Dell, a member of Oak Rock’s board, cannot claim ignorance of the terms of the EisnerAmper engagement letters. This renders any reliance by Prime on Weinstein’s alleged 200 I promise unreasonable as a matter of law. Again, absent a direct nexus between a specific communication and specific investment made in reasonable reliance on that communication, an investor does not have the right to sue an accountant for malpractice for all losses incurred due to the accountant’s negligent work. The context of the 200 I conversations, the remoteness in time from the subject audits and 20 I 0 Transactions, and the contrary terms of the engagement letters collectively preclude a finding of linking conduct based on communications between Weinstein and Dell. 7 Where, as here, there is no linking conduct with respect to the specific audits at issue, near privity between an auditor and a non-client investor cannot be predicated on alleged general assurances provided a decade before the subject transaction. Holding otherwise would contravene the Court of Appeals’ longstanding policy of refusing to adopt broad linking conduct theories. See Sec. Pac., 79 NY2d at 708 (“sweeping liability should [not] be newly and involuntarily imposed on the entire accounting industry by the simple act of lenders communicating their reliance in the manner promoted in this case.”). Finally, plaintiffs cannot establish linking conduct based on EisnerAmper providing Oak Rock’s board and members, including Prime and Oasis, with copies of the audit reports. It is well settled that “[t]he fact that plaintiffs were entitled to and received a copy of the audited financial statements, or that [the auditor] knew that the investors would rely upon the information contained in the financial statements, does not establish the requisite linking conduct.” CRT Investments, Ltd. v BDO Seidman, LLP, 85 AD3d 470, 472 (1st Dept 2011). Plaintiffs’ malpractice claims, therefore, are dismissed. “