342 P.3d 328
Wash. Ct. App.2015Background
- Dewar financed a condo project with Beddall; after losses, they reached a December 29, 2009 settlement where Beddall transferred the property to Dewar and assigned any large 2009 tax refund to Dewar; Hatch (attorney) was to sign/file the return and deliver refunds to Dewar.
- Kenneth Smith (CPA) prepared Beddall’s 2009 return, knew the settlement terms, and transmitted the return to Dewar for review; Dewar requested only an address change (to Hatch’s address), which Smith initially made.
- Beddall later directed Smith to cease communicating with Hatch and had the IRS change the return address from Hatch to Smith; Smith did not tell Dewar that the filed return had been amended and later provided Dewar a copy showing Hatch’s address.
- The IRS mailed refund checks (~$1.2M) to Smith’s office; Smith delivered the checks to Beddall’s son-in-law, Ron Rubin, and later withdrew from the engagement.
- Dewar sued Smith for negligent misrepresentation and related claims; the trial court found Smith owed Dewar a duty and granted summary judgment for damages (~$1.375M). On appeal, the court affirmed the existence of a duty and reversed summary judgment on proximate cause and damages, remanding for further proceedings.
Issues
| Issue | Plaintiff's Argument (Dewar) | Defendant's Argument (Smith) | Held |
|---|---|---|---|
| Federal preemption / confidentiality | Smith previously disclosed returns with consent; his later disclosures were consistent with the settlement and permitted communication. | 26 U.S.C. §§6713/7216 prohibit disclosure after client revokes consent; federal law preempts state duty to disclose. | Federal law barred disclosure after revocation, but it did not require Smith to provide the misleading copy; he had alternatives (seek consent, decline, or noisy withdrawal). Preemption defense rejected. |
| Existence of duty to nonclient third party | Settlement intended the return to benefit Dewar; Smith knew that and thus owed a duty not to mislead. | No precedent imposes accountant duty to nonclients like Trask’s attorney-duty test; engagement letter didn’t name Dewar. | Duty exists: applied Trask multifactor/third-party-beneficiary analysis and prior accountant-professional-duty cases; Smith owed Dewar a duty of care. |
| Negligent misrepresentation (elements, proximate cause, damages) | Smith supplied a misleading return for Dewar’s business guidance, Dewar reasonably relied, and suffered damages. | Even if misleading, Dewar cannot show proximate cause as a matter of law; damages may be mitigated or illusory. | Breach, reliance, and reasonableness established; but proximate cause (cause-in-fact and legal causation) and damage amount were questions for trial — summary judgment on causation/damages reversed. |
| Third-party beneficiary contract claim / summary judgment denial | Settlement and course of conduct show the engagement was intended to benefit Dewar; triable factual issues exist. | Smith not party to settlement; engagement letter didn’t name Dewar so no intended beneficiary as matter of law. | Denial of Smith’s summary judgment on contract claim affirmed; factual inference that contract intended to benefit Dewar precludes summary judgment. |
Key Cases Cited
- ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 835 (Washington 1998) (accountant can owe duty to third parties who justifiably rely on audited financial statements)
- Trask v. Butler, 123 Wn.2d 820 (Washington 1994) (multifactor test for when a professional owes a duty to a nonclient)
- Donatelli v. D.R. Strong Consulting Engineers, Inc., 179 Wn.2d 84 (Washington 2013) (professionals may owe independent tort duties to third parties for negligent misrepresentations)
- Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192 (9th Cir. 2001) (multifactor/transaction-specific standard for auditor liability to identifiable third parties)
- Stewart Title Guaranty Co. v. Sterling Sav. Bank, 178 Wn.2d 561 (Washington 2013) (insurer-attorney relationship did not create intended third-party beneficiary status)