Kenneth Smith, Et Ano. v. Douglas M. Dewar, Resp., 69701-3

Background

Dewar financed joint-venture projects with developer Beddall; by 2009 Beddall owed Dewar about $3.9M and they executed a settlement (effective Dec. 29, 2009) assigning any tax refund to Dewar and requiring Beddall to hire Traner Smith (Kenneth Smith) to prepare a 2009 return seeking ≥ $1,000,000 refund.
Smith prepared the return and transmitted it to Dewar for review; Dewar objected to the return address and other items, Smith changed the address to Hatch (attorney) as Dewar requested, and Hatch signed and filed the return.
Beddall later instructed Smith to communicate only with Beddall and had his return amended so the IRS would send refunds to Smith's office; the IRS issued checks totaling ~$1.2M to Smith, who delivered them to Beddall’s son-in-law per Beddall’s instructions.
Dewar sued Smith for negligent misrepresentation and various contract/tort claims; the trial court granted partial summary judgment that Smith owed Dewar a duty and later ruled as a matter of law that Smith’s negligent misrepresentation caused $1,375,930.86 in damages.
On appeal the court affirmed that Smith owed Dewar a duty and that he breached it by transmitting a misleading return, but reversed summary judgment on proximate cause and damages (factual disputes remain) and denied Dewar’s request to supplement the record.

Issues

Issue	Plaintiff's Argument (Dewar)	Defendant's Argument (Smith)	Held
Whether federal law preempts Smith’s disclosures	Smith had previously shared the return under the settlement, so Dewar could rely on Smith’s disclosures	Once Beddall revoked consent, federal statutes barred Smith from disclosing return info; that preempts state tort duties	Federal law prohibits disclosure but did not require Smith’s misleading conduct; preemption does not excuse misrepresentation (preemption argument rejected)
Whether Smith (CPA) owed Dewar a duty of care as a nonclient third party	Settlement made Smith’s work intended to benefit Dewar; Dewar relied on Smith’s representations	Trask and related authority don’t extend to CPAs; no direct contractual privity	Court held Smith owed a duty under professional rules and Trask-style factors; duty affirmed
Whether Smith’s conduct constituted negligent misrepresentation	Smith sent a misleading version of the return and thus misled Dewar causing loss	Smith says he was authorized to disclose the original return and had no duty to disclose the amendment; also invoked silence/no-duty arguments	Court held Smith breached duty and his transmission was misleading so negligent misrepresentation elements (except proximate cause/damages) were met
Whether proximate cause and damages were established as a matter of law	Dewar argued Smith’s misrepresentation proximately caused the full claimed loss and court can decide on summary judgment	Smith argued causation/mitigation disputed; Beddall’s actions and ability to revoke made causation factual	Reversed: proximate cause and amount of damages are factual disputes for further proceedings; summary judgment on damages reversed

Key Cases Cited

Trask v. Butler, 123 Wn.2d 835 (Wash. 1994) (multi-factor test for when an attorney owes duty to nonclient)
ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 820 (Wash. 1998) (accountant may owe third-party duty where reliance is foreseeable)
Donatelli v. D.R. Strong Consulting Engineers, Inc., 179 Wn.2d 84 (Wash. 2013) (professional duty to avoid negligent misrepresentations to third parties)
Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192 (9th Cir. 2001) (applying multifactor duty analysis to auditors/information suppliers)
Stewart Title Guaranty Co. v. Sterling Sav. Bank, 178 Wn.2d 561 (Wash. 2013) (limits on nonclient beneficiary status where insurer engaged counsel)