Citizens Bank v. Timm, Schimidt & Co. Sup. Ct. Of Wash.,

113 Wis.2d 376, 335 N.W.2d 361 (1983)

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Nature of the Case

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Facts

D is an accounting firm. D employees prepared financial statements for Clintonville Fire Apparatus, Inc. (hereinafter CFA). These financial statements included: a comparative statement of financial condition, a statement of yearly income, a statement of retained income and a statement of changes in financial position. In addition, for each year except 1973, D sent an opinion letter to CFA which stated that the financial statements fairly presented the financial condition of CFA and that the statements were prepared in accordance with generally accepted accounting principles. In November 1975, CFA obtained a $300,000 loan from P. The loan was guaranteed by the Small Business Administration, a federal agency (hereinafter SBA). P made the loan to CFA after reviewing the financial statements which D had prepared. Additional loans, apparently not SBA guaranteed, were made by P to CFA in 1976. By the end of 1976, CFA had a total outstanding indebtedness to Citizens of approximately $380,000. In preparing CFA's financial statement for 1976, D employees discovered that the 1974 and 1975 financial statements contained a number of material errors totaling over $400,000, once all period adjustments were made. P called all of its loans due. As a result, CFA went into receivership and was ultimately liquidated and dissolved. As of the date, the complaint was filed, the amount outstanding on P's loans to CFA was $152,214.44. P filed an action against D and its malpractice insurance company. D filed a motion for summary judgment on the grounds that the pleadings and affidavits it submitted with its motion raised no issue of material fact and showed D was entitled to judgment as a matter of law. D countered with the expert opinion of Den E. Hood, a certified public accountant, which stated that he had examined the audit procedures used by D employees in preparing the 1974 and 1975 financial reports. Hood concluded after examining the procedures that the audit examinations had not been conducted in accordance with generally accepted auditing standards. He also concluded that had such standards been complied with, the material errors in the 1974 and 1975 statements should have been discovered and corrected prior to the issuance of each statement. The trial court granted D's motion for summary judgment. The court concluded that under the Restatement of Torts (2d) section 552, accountants may be held liable to third parties for their negligent acts. However, the judge also concluded that based upon the affidavits before him, the Restatement did not extend D's liability to P. P moved for reconsideration of this decision. The trial court denied this motion. The court of appeals affirmed the trial court. It concluded that even assuming that section 552 of the Restatement should be the law in this state, there was still no genuine issue of fact as to whether P was within the class protected by its provisions. Therefore, the court of appeals concluded summary judgment was properly granted. P appealed.