Cast Art Industries, LLC v. KPMG LLP
36 A.3d 1049
N.J.2012Background
- Cast Art alleged accounting negligence by KPMG for audits of Papel in 1998–1999 in the merger with Cast Art.
- KPMG audited Papel and warned of going-concern issues; later-the parties merged; Cast Art discovered Papel’s revenue fraud post-merger.
- Cast Art sought damages for losses allegedly caused by KPMG’s negligent audit; trial court awarded damages; Appellate Division vacated damages and remanded for a new damages trial.
- Appellate Division held liability could be established but damages weren’t supported; this Court granted certification and now reverses.
- Court’s central issue: proper construction of N.J.S.A. 2A:53A-25, limiting accountant liability to nonclients; court reverses and remands for dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper interpretation of N.J.S.A. 2A:53A-25(b)(2)? | Cast Art contends broader foreseeability; KPMG argues narrow, time-of-engagement | KPMG asserts statute limits liability to at outset of engagement | “At the time of the engagement” is restrictive; statutory intent to narrow liability |
| Did Cast Art prove the statutory elements to impose liability? | Cast Art argues KPMG knew reliance or agreed Cast Art would rely | KPMG argues no agreement or knowledge of reliance at or after engagement | Cast Art failed to show agreement or intended reliance by nonclient; judgment for KPMG affirmed |
| Was reference to KPMG training materials in standard of care error? | Training materials show breach of standard; admissible as evidence | Court erred in using internal materials to define standard | Issue moot after statutory interpretation; no need to address damages on remand |
Key Cases Cited
- Ultramares v. Touche, 255 N.Y. 170 (N.Y. 1931) (origin of privity/foreseeability debate for auditor liability)
- Rosenblum v. Adler, 93 N.J. 324 (1993) (New Jersey rejects privity-only approach; expands foreseeability prior to statute)
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (N.Y. 1985) (Restatement-like test for accountant liability to foreseeably relied-upon third parties)
- NCP Litig. Trust v. KPMG, 187 N.J. 353 (2006) (Engagement scope and attribution of liability to auditors)