Lawyers Fight Limits on Accountants’ Liability
Measure Could Spell End of Joint Liability
By WENDY L. PFAFFENBACH
A bill that would absolve accountants of joint-and-several liability could lead to the demise of the doctrine altogether, according to lawyers who oppose the measure.
The legislation, Senate Bill 2096 entitled “An Act Relative to the Practice of Public Accountancy,” would replace joint and several liability for accountants with proportionate liability.
House leadership reportedly supports the measure. Calls to House leaders were not returned prior to deadline.
Daniel S. Savrin of Boston, counsel to the Massachusetts Society of Certified Professional Accountants, which supports the bill, said it is merely a “narrow amendment carefully tailored to address the unique role of accountants.”
But Martin W. Healy, acting executive director and general counsel of the Massachusetts Bar Association, contended the bill is not supported by any compelling rationale, and it is a serious threat to the civil justice system in Massachusetts.
“This is the proverbial slippery slope,” Healy said. “This is the beginning of the end of joint and several liability in Massachusetts.”
Defeating the provision is one of the MBA’s highest legislative priorities, Healy added.
The Massachusetts Academy of Trial Attorneys is also opposed to the proposed law, according to Douglas K. Sheff, the organization’s president.
“The bill is bad for lawyers all around,” Sheff maintained. “Lawyers hands will be tied behind their backs without joint and several liability.”
The Massachusetts Securities Division, Massachusetts Bankers Association and State Auditor’s Office also oppose the bill, Healy noted.
This Is The End?
Bill opponents believe that passage of the bill will quickly lead to greater limitation on the scope of joint and several liability.
According to Sheff, if accountants succeed in passing this bill, other interest groups such as insurance companies and corporations will push for a much broader law.
“Just because there is a bill about accountants, doesn’t mean that only accountants are interested in it,” Sheff observed.
Within a month of the bill passing, Sheff predicted, the term “accountant” will be changed to “doctor” or “defendant.”
But Savrin contended that such concerns are “inappropriate and alarmist.”
He said that “in recognizing the unique role of accountants, I don’t think the Legislature intends to eradicate joint and several liability.”
Application of joint and several liability in a financial matter is also significantly different than in most tort cases, Savrin maintained.
“Unlike a personal injury case, in a financial matter you have a plaintiff who made decisions and weighed the risks,” he remarked.
Michael T. Baker of Boston, a non-lawyer representative of the Society of CPAs, said the bill was an extension of the principles set forth by the Supreme Judicial Court in its 1998 decision NYCAL Corp. v. KPMG Peat Marwick LLP, where the SJC held that an accounting firm was not liable to the plaintiff because it did not know the plaintiff would rely on its work product when making an investment decision.
“The SJC recognized that the profession is unique … this bill just raises the bar,” Baker said.
In view of the NYCAL decision, Healy is unsure why accountants are seeking further protection.
When the SJC adopted a “limited privity rule” for accountants it was a “significant change and movement in Massachusetts … one that should have satisfied the concerns of the accounting industry,” Healy said.
Necessary Law?
Opponents of the bill question whether accountants have shown a genuine need for protection from joint and several liability.
In the past, when industries sought tort reform they were able to point to significant harm to both the industry and the industry’s customers, Healy noted.
For example, he explained, during the medical malpractice reforms, evidence was presented that consumer costs were skyrocketing and that specialists were leaving the state in droves.
“There is no crisis now, everyone is prospering,” Healy said. “There has not been one iota of evidence put forth by the accounting industry [suggesting a need for this reform].”
Sheff is similarly skeptical about the accountant’s need for such reform.“Why accountants?” he asked. “How many accountant negligence cases are there a year?”
The fact that the accountants’ rationale for the bill is insufficient underscores the importance of defeating it, said Healy.
“It’s the beginning of further erosion,” he emphasized. “I can imagine every profession and association coming to Beacon Hill and making a much better argument [than the CPAs].”
But Savrin countered that accounting professionals need the protection laid out in the bill.
The average accounting firm spends between 11 and 12 cents of every revenue dollar on insurance and defense costs, Savrin explained.
In addition, Baker observed that accountants are often “the last man standing” when a company goes under, leading people who had their assets tied up in the company to go after the accounting firm.
Auditors often report on financial documents that were created by other parties and over which they have no control, Savrin said.
This creates “a serious problem in terms of equity when the accountant ends up as the only solvent defendant,” he added.
Still, Healy said no evidence of increases in claims against accountants has been shown, or that frivolous lawsuits are being brought.
“You shouldn’t undo a century of silent jurisprudence on a whim,” Sheff added.
Bad For All
Even if passage of the bill doesn’t lead to further erosion of joint and several liability, it still would be harmful to lawyers and the public, Sheff said.
The MATA president pointed to the Harvard Pilgrim insolvency and the Big Dig budget crisis as two examples where accounting errors caused the state to lose a significant amount of money.
For Healy, the bill would result in a legislative policy that would condone the notion that “when one wrongdoer cannot pay its portion of a judgment the other wrongdoers are legislatively protected without concern for compensating the innocent party.”
