435, 483 N.E.2d 110 (1985). Credit Alliance discussed the circumstances under which an accountant could be liable in negligence to a noncontractual party who relied to its detriment on inaccurate financial reports. The New York Court of Appeals held that to be liable, the accountant must have been aware that the financial reports were to be used for a particular purpose, in furtherance of which a known party was intended to rely, and there must have been some conduct on the part of the accountant linking the accountant to that party which evinces the accountant's understanding of that party's reliance. Id. at 551. The necessary "linking conduct" in this case must be conduct by Peat Marwick, the accountant.
In European American Bank and Trust Company v. Strauhs & Kaye, 65 N.Y.2d 536, 483 N.E.2d 110, 493 N.Y.S.2d 435 (1985), the companion case to Credit Alliance, the New York Court of Appeals held that a lender sufficiently alleged a negligence claim against its borrower's accountant. In that case, it was alleged that the accountant knew that the lender was relying on the financial statements, and that representatives of the accountant and the lender were in direct oral and written communication during the entire course of the lending relationship. Id. at 544. It was further alleged that representatives of the accountant and lender met together to discuss the accountant's evaluations and the lender's reliance thereon. Id.
In Security Pacific Business Credit, Inc. v. Peat Marwick Main & Co., 79 N.Y.2d 695, 586 N.Y.S.2d 87, 597 N.E.2d 1080 (1992), the New York Court of Appeals held that a single unsolicited telephone call about an audit report from a plaintiff lender to the borrower's accountant was insufficient linking conduct to demonstrate the necessary "linking conduct." The Court contrasted the facts to those in European American, where "the accountants had multiple, direct and substantive communications and personal meetings with the relying lender during the entire course of the lending relationship." Security Pacific at 705.
In this case, First Capital alleges that its relationship with the Common Fund was unique and that Peat Marwick was aware of that unique relationship. Further, First Capital alleges that Peat Marwick specifically agreed to give special attention to First Capital and to audit and examine First Capital's reports and procedures. The only allegations in the complaint that relate to the necessary "linking conduct" are: (1) an allegation that on August 10, 1993, at a meeting attended by the Common Fund, First Capital, and Peat Marwick, the Common Fund and Peat Marwick agreed that they would work together to develop and recommend procedures to ensure First Capital's and its employees' compliance with the 1993 Guidelines; (2) an allegation that various audit services, including review of First Capital's internal reporting and controls, were performed on the premises of First Capital; and (3) an allegation that Peat Marwick prepared proposed compliance review procedures for First Capital, which were then sent by the Common Fund to First Capital for its review and comment.
These allegations, even if true, do not constitute sufficient linking conduct on the part of Peat Marwick to demonstrate its understanding of First Capital's reliance on Peat Marwick's services. Therefore, the allegations do not support a finding that there was a relationship approaching privity between First Capital and Peat Marwick. There is no allegation that Peat Marwick ever promised First Capital to provide audit services. There is no allegation that Peat Marwick ever provided First Capital with any written document. While on one occasion, a draft of compliance review procedures was sent to First Capital by the Common Fund, there is no allegation that Peat Marwick had any knowledge that the draft was ever provided to First Capital. There is no allegation that First Capital ever saw or relied on any of Peat Marwick's written audit reports. Furthermore, there is no allegation that Peat Marwick ever made any oral representation to First Capital or that First Capital relied on any oral representation. Nor does First Capital allege that at the August 10, 1993 meeting there was any discussion of reliance, as was alleged in European American. The allegations that First Capital does make, which are set forth above, simply do not support a finding of a relationship approaching privity between First Capital and Peat Marwick.
For the foregoing reasons, Peat Marwick's motion to dismiss First Capital's first and second cross-claims is granted.
Dated: New York, New York
February 6, 1997
MIRIAM GOLDMAN CEDARBAUM
United States District Judge
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