Tag Archives: breach

Minnesota Federal District Court clears up confusion regarding accountant malpractice claims in North American Specialty Insurance Company v. WIPfli, LLC, et al.

5 Aug

On July 26, 2013, the Federal District Court for the District of Minnesota issued an order reconciling almost 40 years of ambiguous rulings concerning the claims available to a third party non-client seeking to sue an accountant. The case is North American Specialty Insurance Company v. WIPfli, LLC, et al. A copy of the Order, which denied WIPfli, LLC’s (“WIPfli”) motion to dismiss the complaint for failure to state claims against it, can be read here.

The case involved North American Specialty Insurance Company (“NAS”), which provided statutory performance and payment bonds on projects performed by general contractor Crowley Company, Inc. (“Crowley”). The purpose of these bonds is to guaranty for the project owner or developer that, in the event Crowley were to fail to perform its obligations under its contract, which might involve failure to complete the work (performance bonds) or failure to make full payment to all of its subcontractors and suppliers (payment bonds), NAS would act as “surety”, and would pay to ensure those obligations were met.

According to the Court’s Order, NAS alleged that WIPfli performed accounting and auditing services for Crowley. Thus, NAS was not WIPfli’s client. However, WIPfli prepared two “Independent Auditor’s Reports” regarding Crowley’s financial statements and condition, on which NAS claims it relied in providing $8 million in bonds on Crowley’s projects. Ultimately, according to NAS, Crowley began defaulting on its obligations to several parties because it was in poorer financial condition than Crowley’s financial statements suggested, and NAS alleges it ultimately was obligated to pay on approximately $2 million in claims.

NAS apparently alleged several items contained in WIPfli’s reports were inaccurate and were not based on generally accepted accounting standards despite a statement within the reports that WIPfli had done so. Importantly, NAS also alleged that WIPfli was aware that NAS would rely on the WIPfli reports. Therefore, in addition to suing Crowley to recover the amounts it claims it had to pay because it relied on the contractor’s misleading financial statements, NAS sued WIPfli alleging it failed to catch certain manipulated and inaccurate figures in those financial statements when preparing its “Independent Auditor’s Reports.”

WIPfli argued that NAS’s complaint should be dismissed because: 1) Minnesota does not recognize a claim for negligence against accountants by parties who were not clients of that accountant; and 2) failed to state with the required specificity a claim for negligent misrepresentation. The Court analyzed whether Minnesota law recognizes a claim for negligence (otherwise known as malpractice when referring to a professional such as a doctor or accountant) by a party in NAS’s position against an accountant providing services for another party (in this case, Crowley). Although noting that several cases issued by Minnesota’s appellate courts have allowed claims to proceed against accountants on claims that were referred to as based on “negligence”, this Court observed that a close reading of those cases demonstrates that Minnesota Courts had never held “negligence” was the appropriate cause of action. Rather, the claims at issue were permitted to proceed because they satisfied the standard for negligent misrepresentation.

The Court suspected the apparently confusing holdings in prior cases was due to the similarity between claims for negligence and claims for negligent misrepresentation. Ordinary negligence requires, among other things, that a defendant, who owes a duty to the plaintiff, breaches that duty (generally by failing to exercise the appropriate degree of care or competence). Negligent misrepresentation contains several additional elements, including the nature of the defendant’s role in the applicable transaction, but also includes a failure “to exercise reasonable care or competence in obtaining the information or communicating . . . information” to the plaintiff. A failure to exercise reasonable care is required under both claims, but the Court determined that a party in NAS’s position has been recognized as having a cause of action against another party’s accountant for negligent misrepresentation; not for negligence/malpractice.

The Court went on to determine that NAS had sufficiently pled facts necessary to continue with its negligent misrepresentation claim against the accounting firm. More importantly, however, based on its incisive analysis, the Court dismissed NAS’s claim for negligence against WIPfli after concluding that Minnesota courts had never intended to recognize such a claim despite certain cases that may at first have suggested otherwise.

Matt Drewes contributed this article. Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law, and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in print publications such as the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, and on various websites including Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations, and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

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Minnesota Court of Appeals Holds Buyer Was Earnest About Real Estate Purchase Even Though It Didn’t Pay the Earnest Money Due Under the Purchase Agreement

7 Apr

In the case BOB Acres, LLC v. Schumacher Farms, LLC, decided on April 5, 2011, the Minnesota Court of Appeals held that, as long as the parties to a real estate purchase agreement clearly express the intent to buy and sell real property, the fact that the buyer did not provide the earnest money stated in the contract did not render the contract invalid.  Read it here.  It may at first seem remarkable that the Court of Appeals would hold that a party that did not provide the earnest money specified in the purchase agreement might still be able to enforce the agreement, but there were several factors involved.

The earnest money was a fairly nominal amount ($500 earnest money on a $70,000 contract for the purchase of 25 acres of undeveloped land).  This suggests that the earnest money was not a significant factor in the seller’s decision to sell the property to the buyer, but rather earnest money is provided simply to show the buyer’s good-faith intentions.

The Court also noted that the failure of a party to perform a material provision of the agreement could be a breach that permits the non-breaching party to discontinue performance, but the seller did not raise any objection to buyer’s failure to tender the earnest money until it had already announced that it no longer wished to be bound by the purchase agreement.  This resulted in a waiver by the seller of any right to object to certain breaches of the agreement by buyer, which might have allowed it not to go through with the sale if it hadn’t waived its rights.  The Court of Appeals explained that there is a difference between the issue of contract formation and contract performance.  As far as contract formation is concerned, the Court cited to a treatise on contract law (but apparently found no prior Minnesota case law on point) to hold that a promise is sufficient consideration for a promise.  In other words:  the buyer’s promise to buy the property (presumably for the purchase price stated in the agreement) was sufficient consideration for the seller’s promise to sell the property; the modest earnest money payment was simply incidental to the agreement.

Thomsen Nybeck represents both buyers and sellers, as well as lenders and other parties involved in real estate transactions of all types and sizes.  If you have a question about your next deal, contact one of our attorneys for advice about how to ensure you get the deal you intend.

Matt Drewes contributed to this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance.  He has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Yahoo!Finance.com, Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Few Actual Changes to Minnesota’s Residential Warranty Statute

1 Jun

A slate of bills recently moved through the Minnesota House and Senate to the desk of Governor Tim Pawlenty which related to the State’s residential construction warranty laws.  They included:

 

  • House File 239, Senate File 6, which provided a remedy to homeowners to recover from the contractor for the homeowner’s short-term housing costs when there is a breach of the statutory warranty, such as in a construction defect case (hereinafter “Temporary Housing Cost Bill”);

 

  • House File 412, Senate File 470, which allowed homeowners 12 years after the warranty date to file a claim (though if more than 10 years, only one year after discovering the breach) and thereby increasing the current period by 2 years (hereinafter “Statute of Limitations Bill”);

 

  • House File 211, Senate File 170, which allowed a judge to award attorneys’ fees should a homeowner prevail in its claims to enforce statutory residential warranties (hereinafter “Attorneys’ Fees Bill”);

 

  • House File 362, Senate File 362, which eliminated the requirement that homeowners provide written notice of major structural defects within 6 months of discovery when, in incidents where the contractor had knowledge of the loss or the damage (hereinafter “Elimination of Notice Requirement Bill”); and

 

  • House File 420, Senate File 776, which required contractors to provide to homeowners, copies of the state’s home warranty laws within the construction contract and prohibited either the contractor or the homeowner from modifying that warranty (hereinafter “Warranty Disclosure Bill”). 

 

Between May 19 and May 21, 2009, Governor Pawlenty vetoed the Temporary Housing Cost Bill, the Statute of Limitations bill, the Attorneys’ Fees Bill, and the Elimination of Notice Requirement Bill.  Governor Pawlenty signed into law only the Warranty Disclosure Bill.  Governor Pawlenty stated that his reason for vetoing the majority of these bills is a concern that those bills would create “burdens on the housing sector during [a] historic recession.”  While many in the construction defect area kept a close watch on these bills, as they had the potential to greatly change the landscape of the construction defect practice area, the end of the day held very little change due to the vetoes by Governor Pawlenty.

 

Chris Renz is a shareholder practicing in the Litigation Practice group at Thomsen & Nybeck, P.A., a law firm in Edina. Thomsen & Nybeck, P.A. has a number of professionals dedicated to meeting the legal needs of individuals, businesses, and associations, both big and small.  Chris concentrates his practice in the areas of Construction Litigation, General Civil Litigation, Home Owners Association Law, Real Estate Litigation, Criminal Law, Employment Law and Real Estate Law. He can be reached at crenz@tn-law.com; (952) 835-7000.

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