Id. at 361-62, 401 N.Y.S.2d at 478, 372 N.E. 2d at 319 (citations omitted). This is an example of the type of contact between the accountant and the third party which is close enough to come under Ultramares' narrow exception to privity.
The New York Court of Appeals created the "Credit Alliance test" out of Ultramares in Credit Alliance v. Arthur Andersen & Co., 65 N.Y.2d 536, 493 N.Y.S.2d 435, 483 N.E. 2d 110 (1985). It restated the Ultramares rule as follows:
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 93) 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.
65 N.Y. 2d at 552, 493 N.Y.S.2d at 443. Plaintiffs have, at most, alleged only the first two: that the accountants must have been aware that the financial reports were to be used for the Select Memorandum (based on the fact the reports were prepared in June, instead of the more customary October), and that the owners of the limited partnerships were the known parties. However, they have not alleged the third.
In support of their argument that preparation of the June 1986 balance sheet evinces the accountants' knowledge of their reliance, plaintiffs cite Meranus v. Gangel, 1989 U.S. Dist. LEXIS 9294, No. 85 Civ. 9313 (S.D.N.Y. August 9, 1989), where tax opinions included in the partnership offering did demonstrate the tax attorneys' knowledge of the plaintiffs' reliance. Plaintiffs misconstrue that case, which is actually in full accord with existing law:
Although the tax opinions were uniformly addressed to the partnerships, care of the general partners, we take judicial notice . . . that the only parties to the transaction concerned with its tax consequences were the prospective limited partners, since the partnership itself was not a tax-paying entity. Plaintiffs are therefore entitled to an inference that the only purpose of the tax opinion was to convey a view of the likely tax consequences for the purpose of inducing investment in the limited partnerships.
Meranus, slip. op. at 11. Meranus is justified on a more precise ground than Credit Alliance's general exception to professional contract, since here, in effect, the client asked the attorney to prepare the opinion for the exclusive benefit of the third party. "When a lawyer at the direction of her client prepares an opinion letter which is addressed to the third party or which expressly invites the third party's reliance, she engages in a form of limited representation." Crossland Sav. FSB. v. Rockwood Ins. Co., 700 F. Supp. 1274, 1282 (S.D.N.Y. 1988). Under such circumstances these "opinion letters do not constitute advice to a client, but rather were written at the client's express request for use by third parties." Vereins-Und, 691 F. Supp. at 714.
Plaintiffs have cited no case involving accountants, and it is hard to imagine how a balance sheet drawn up for a business entity could not constitute a service rendered by the accountants to that entity. The Credit Alliance test for accountants usually requires some evidence of an actual nexus between the accountants and the third parties to verify the accountants' knowledge of the third party's reliance. Where the accountants to a target firm sent audit letters directly to the acquiring company in Devaney v. Chester, Fed. Sec. L. Rep. (CCH) P 92,747 (S.D.N.Y. 1986), such direct dealing was precisely the sort of necessary link sought to meet the third requirement of the Credit Alliance test. Where accountants for a dealer in government securities themselves mailed audits of the dealer to plaintiffs, "the act of sending such letters directly to the plaintiffs satisfies the conduct requirement." First Fed. Sav. & Loan Ass'n of Pittsburgh v. Oppenheim, 629 F. Supp. 427, 434 (S.D.N.Y. 1986).
The only fact that the plaintiffs allege which connects them to the accountants was the date on which the balance sheet was prepared, i.e. June, in place of the more customary September. (Complaint at P 33). No other contact is alleged. Under the Credit Alliance test as it has been interpreted in New York, this meets only the first criterion. Therefore, plaintiffs' claims based on negligence or breach of fiduciary duty are dismissed.
For all of the foregoing reasons, the Plaintiffs' securities fraud claims are dismissed for failure to plead fraud with particularity. The claims of violations of negligence and fiduciary duty are dismissed for lack of standing. The state law claims are also dismissed for lack of subject matter jurisdiction. In light of the Plaintiffs' ample opportunity to investigate their claims prior to repleading this case, the dismissal of the claims against E&Y is with prejudice.
It is so ordered.
New York, N. Y.
December 16, 1992
ROBERT W. SWEET