The opinion of the court was delivered by: BRIEANT
MEMORANDUM DECISION ON REARGUMENT
A motion by defendants and Third-Party Plaintiffs for a reargument of this Court's Memorandum decision of May 9, 1974, or alternatively, for certification of an interlocutory appeal pursuant to 28 U.S.C. § 1292(b), compels the conclusion that our recent decision was ill considered. It should be, and is in all respects withdrawn and vacated, and the following is substituted.
We begin de novo. On June 30, 1969, the named individual third-party defendants (referred to for convenience as "the Bradley family," or "the Bradleys") owned all of the stock of Acme Fast Freight, Inc., and 21 related corporations (referred to collectively as "Acme"). On that date they agreed to and did sell, on terms, to Alexander & Baldwin, Inc., plaintiff herein ("Alexander").
Acme was then operating what is said to have been the second largest freight forwarding concern in the United States, having a gross consolidated annual revenue in excess of seventy-eight million dollars. Defendant Hauser, O'Connor & Hylind, a firm of certified public accountants ("Hauser") had been acting as auditor for a certain subgroup of the Acme corporations, and Peat, Marwick, Mitchell & Co. ("Peat"), also a firm of certified public accountants, was auditor for others of the Bradley owned corporations. For convenience these defendants are sometimes referred to collectively as the "Auditors".
The sales price of the Acme shares to Alexander was based on a formula which included as an element the "consolidated net worth as of December 31, 1968" to be adjusted downward if, after audit, defendants certified such net worth to be less than $1,300,000.00. Payment was to be made in five equal installments, beginning January 5, 1970.
In January 1972, Alexander refused to pay the installment then due, and on August 14, 1972 sued the Bradleys in this Court (72 Civ. 3442-JMC), pleading nine (9) separate causes of action, demanding various damages ranging from $81,020.00 on account of the "Gaines Motor Lines" transaction to $12,117,985.00 and a six and one-half million dollar bond, on the Sixth and Seventh Counts, as well as rescission of the stock purchase.
Central to this litigation ("the Bradley case") was a contention by Alexander that certified financials (including those of the Auditors sued here) were not truthful or accurate, or correct as warranted to Alexander by the Bradleys, and relied upon. Specifically, it was alleged that certain liabilities were omitted [Bradley case complaint para. 18(a)] and assets overstated [ibid. para. 18(b)]. The net diminution in value effected by such inaccuracies was claimed to be "at least $2,265,000.00." Other grievances were asserted against the Bradleys arising out of warranties, representations or alleged omissions to disclose, some of which did not involve activities in which the Auditors participated.
On March 9, 1973, the Bradley case was marked settled and discontinued with prejudice, pursuant to a written agreement dated February 26, 1973, under which Alexander and the Bradleys release all claims against each other with an exception not material here. That agreement provided that the releases
". . . shall not affect or prejudice the rights, claims and causes of action of every type which the Plaintiff or the Defendants or any of them may now or hereafter have against any third party, including Peat, Marwick, Mitchell & Co. and Hauser, O'Connor & Hylind, in connection with the purchase by the Plaintiff from the defendants of the stock of Acme Fast Freight, Inc. and 21 other corporations under the Agreement dated June 30, 1969, all of which are expressly reserved.
This Agreement shall be governed by and construed under the laws of the State of New York."
At the same time, future and past due installments owed by Alexander to the Bradleys, in the total amount of $2,995,000.00 were discharged by payment of $2,550,000.00 made February 26, 1973.
Alexander could have sued the Auditors in the same action. Instead, it entered into two separate written arrangements, one of which, made with Peat, and dated August 10, 1972, provides in part:
". . . in the event Alexander & Baldwin, Inc. feels obliged to institute an action against Peat, Marwick, Mitchell & Co. because of alleged claims arising out of the purchase of shares of stock of Acme Fast Freight, Inc. and certain related companies in 1969, for purposes of statute of limitation and laches defenses the parties will treat that action as if it were brought on July 18, 1972."
A substantially similar agreement dated November 20, 1972 with Hauser provides:
". . . if Alexander & Baldwin, Inc. does not commence suit against Hauser, O'Connor & Hylind before November 21, 1972, in any suit commenced thereafter, the time which elapses between August 5, 1972 and May 21, 1973 shall not be counted in computing the running of time in any applicable statute of limitations or bar of laches and Hauser, O'Connor & Hylind will waive and will not plead any defense of the statute of limitations or bar of laches based on the passage of any period of time between August 5, 1972 and May 21, 1973."
On May 18, 1973 Alexander filed the complaint in this action, seeking damages from the Auditors in substantial amounts. Plaintiffs here plead four counts, arising out of its dealings with the Bradleys. The first count charges Peat with a knowing and willful violation of the securities laws, as a result of having made false or misleading statements, knowingly and wilfully, in its accounting opinion, which "[operated] as a fraud and deceit upon Alexander & Baldwin" (Complaint, para. 15), and upon which Alexander relied in purchasing Acme. Count 2 pleads a common law claim founded on negligence in the expression of the accounting opinion "to such a degree that [Peat's] conduct constituted a reckless disregard for the truth." (Complaint, § 29). The third count pleads against Hauser on the same basis as Count 1 is alleged against Peat. Count 4 asserts against Hauser the same legal theory asserted against Peat in Count 2.
On October 9, 1973 Peat filed a third-party complaint against the Bradleys and others. Hauser's position in the litigation is the same. Peat's pleading may be taken as representative of the claims of both Auditors. It pleads that those Acme financials which Peat audited and certified,
"were prepared by employees and officers of the Acme Companies and were reviewed by them and by some or all of the individual third-party defendants and were presented to Peat, Marwick for examination by or on behalf of the Third-Party Defendants in order to induce Peat, Marwick to report on such financial statements." (Third-Party Complaint, para. 18),
that officers and employees of Acme companies made [false and fraudulent] representations to the Auditors to induce their certification, and that this wrongdoing is chargeable to the Bradleys, from whom Peat seeks indemnity or contribution with respect to any damages it may be adjudged to pay Alexander.
The Bradleys seek by motion dated February 14, 1974 to dismiss "the complaint, the third-party complaint . . . insofar as they are grounded on defendants' negligence . . . because the claims are time barred by the applicable statute of limitations, and dismissing the third-party complaints in their entirety on the ground that they fail to state claims upon which relief may be granted."
THE STATUTE OF LIMITATIONS FOR NEGLIGENCE
The Bradleys are not parties to the Auditor's letters, previously quoted, which toll "the" statute of limitations. Their rights and liabilities must ...