A. Client Relations
1. Why Does Client Sue A Professional?
- Good reason
- Current environment
- Lack of professional “bed-side” manner
II. PROBLEM AREAS LEADING TO CLIENT LITIGATION AGAINST THE CPA OR OTHER PROFESSIONALS
- FAILURE TO COMMUNICATE WITH CLIENT
- FAILURE TO LISTEN TO CLIENT
- FAILURE TO DOCUMENT FILE
- FAILURE TO PROCESS PROBLEM/PROJECT
- FAILURE TO FOLLOW-UP WITH CLIENT
- FAILURE TO CORRECTLY IDENTIFY ISSUE/PROBLEM
- FAILURE TO PROMPTLY DEAL WITH AND SOLVE THE PROBLEM
- FAILURE TO REACH CORRECT CONCLUSION
- FAILURE TO EXERCISE DUE DILIGENCE
- FAILURE TO COMMUNICATE STRATEGY/COURSE OF ACTION TO CLIENT
- FAILURE TO COMMUNICATE UNUSUAL OR UNIQUE ISSUES
- FAILURE TO RECOGNIZE LEVEL OR COMPETENCY RE: PARTICULAR ISSUE – AND SEEK ASSISTANCE
- FAILURE TO INVOLVE CLIENT IN DECISION MAKING RISK/BENEFIT ANALYSIS OF SOLUTION TO CLIENT’S PROBLEM/PROJECT
III. THEORETICAL BASES TO SUE A CPA., ACCOUNTANT OR OTHER PROFESSIONAL
Ultrainares Corp. V. Touche Ross and Company, 174 N.441 (N.Y. 1931) “Privity” relationship.
Lindner v. Barlow, Davis & Wood, 210 Cal. App. 2d 660, 665 (1962) – Duty to client to exercise the ordinary skill and competence of members of their profession.
2. Gross Negligence
3. Negligent Misrepresentations
Buy v. Arthus Young & Co., 3 Cal. 4 th 370, 408 (1992) – Class of persons entitled to rely upon the representation is restricted to those to whom or for whom the misrepresentations were made.
D. BREACH OF FIDUCIARY DUTY
E. STATUORY VIOLATIONS
1. Deceptive Trade Practices
3. Securities Act of 1933, Section 11
4. Securities Exchange Act of 1934, Section 10(b)
IV. CONTRACTUAL RELATIONSHIP NOT REQUIRED TO FORM BASIS OF PROFESSIONAL LIABILITY: BEWARE OF “STRANGERS IN THE NIGHT”
A. CONTRACTUAL DUTIES - RELATIONSHIP
Ultrainares Corp. V. Touche Ross and Company, 174 N.441 (N.Y. 1931) – Duty limited to those “in privity” or with a relationship with the accountant, or those “intended” recipients of the information.
B. NORMAL FORESEEABLE THIRD PARTIES
Ruech Factors, Inc. v. Levin, 284 F. Supp. 85 (S.R.I. 1968) – Non-privity plaintiff financier relying on financial statements allowed to sue.
C. REASONABLY NORMAL FORESEEABLE THIRD PARTIES
Rosenbium v. Adler, 461 A.2d 138 (N.J. 1983) – Expanded liability of accountants to third parties whose reliance on audited financial statements was reasonably foreseeable.
International Mortg. Co. v. John P. Butler Accountancy Corp., 177 Cal. App. 3d 806, 809 (1986) Duty of care to reasonably foreseeable plaintiffs who rely on alleged negligently prepared and issued unqualified audited financial statements, disagreeing with Ultrainares.
By v. Arthur Young & Co., 3 Cal. 4 th 370 (1992) – The contrary general negligence rule and foreseeability approach of International MortQ. Co. v. John P. Butler Accountancy Corp~ is rejected. However, liability is found for negligent misrepresentations to those persons who rely on them.
Industrial Indem. Co. v. Touche Ross & Co., 13 Cal. App. 4 th 1086, 1093 (1993) Applies Buy retroactively, and holds that auditor for borrower that defaulted on short-term loan was not liable to lender’s surety.
- CLIENT NON-PAYMENT OF FEES
COMPULSORY COUNTERCLAIM AGAINST CLIENT WHERE CLIENT IS PLAINTIFF AND SUES THE PROFESSIONAL
PRO BONO: IS WORKING FOR FREE AS A PROFESSIONAL COURTESY, OR PUBLIC SERVICE, A SHIELD AGAINST LIABILITY?
STAUTE OF LIMITATIONS
Moonie v. Lynch, 256 Cal. App. 2d 361 (1967) – Two year malpractice action against an accountant does not run until the negligent act is discovered, or with reasonable diligence could have been discovered.
International Engine Parts, Inc. v. Feddersen And Company, 9 Cal. 4 th 606 (1995) – Two year statute of limitations commences when tax deficiency is assessed or when a notice of deficiency is issued, not when tax return is filed.
VI. WHAT TO DO IF TROUBLE VISTS, BY CLAIM OR LITIGATION
- REPORT DUTIES
- SEEKING EXPERT WITNESS ASSISTANCE
- HOW TO TESTIFY IN YOUR BEHALF
2. At Trial/Arbitration/Mediation
VII. UNDERSTANDING PROFESSIONAL LIABILITY INSURANCE COVERAGE: AVOID THE PITFALLS
- BUYING A POLICY OF INSURANCE
- OCCURRENCE POLICIES
- CLAIMS MADE POLICIES
- NON-WAIVER AGREEMENTS
- RESERVATION OF RIGHTS
- CONSENT TO SETTLE
- EXCLUSIONS FROM COVERAGE
VIII. LACK OF INSURANCE
- PRIVATE RESERVE
- LITIGATION COSTS
- EXPOSURE OF PERSONAL ASSETS
- TECHNIQUES TO LIMIT RISK OF ASSEST LOSS
- CONTINUING AWARENESS OF CLIENT RELATIONSHIP AND CONCERNS
- COMMUNICATION, COMMUNICATION, COMMUNICATION…
- “GOOD BESIDE MANNER”: “ALWAYS LEAVE THE CLIENT SMILING”