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Bowen Court Associates v. Ernst & Young3/27/2003
Must non-client and third-party claimants file professionalnegligence lawsuits against accountants within one of the periods provided for in the statute of limitations for accounting malpractice, G.L. 1956 § 9-1-14.1? We answer this question in the affirmative. We do not decide, however, exactly which non-clients and third parties can file such claims, nor under precisely what circumstances they can do so. Rather, we hold that third-party claims for alleged professional negligence or other negligent wrongdoing, which are based on or related to professional services that the accountants in question allegedly performed or failed to perform, constitute actions for accounting malpractice; that, therefore, such claims must be brought within one of the statutory time limits specified in § 9-1-14.1 for filing accountingmalpractice claims; and that the absence of contractual privity between the claimants and the accountants in question does not remove such professional-negligence claims from the ambit of the accounting-malpractice statute of limitations.
We also hold that G.L. 1956 § 42-116-40 precludes any attempt to obtain equitable indemnification from a party who has resolved its liability to the Rhode Island Depositors Economic Development Corporation (DEPCO) in "a judicially-approved good faith settlement" with respect to any "matters addressed in the settlement." Id.
For the reasons accounted for herein, we affirm the judgment of the Superior Court dismissing the claims in this case and deny the present appeal.
Facts and Travel
We have described the factual background of this lawsuit in Rhode Island Depositors Economic Protection Corp. v. Bowen Court Associates, 763 A.2d 1005, 1006-07 (R.I. 2001) (Bowen Court I). Suffice it to say that in Bowen Court I we held that DEPCO was entitled to a judgment against the borrower and guarantors who are the named plaintiffs in this case -- that is, Bowen Court Associates (Bowen Court), a Rhode Island general partnership, and its loan guarantors, respectively -- for the amounts due and owing to DEPCO on an unpaid real-estate loan, irrespective of any recoupment defense. Id. at 1010.
To briefly recap: in 1990, Bowen Court was a Rhode Island general partnership and plaintiffs James S. Gladney, Roderick A. Mitchell, and Downtown Investors, Inc., were its general partners. Together with plaintiffs Philip W. Noel, Charles J. McGovern, and Gary R. Pannone, general partners Gladney and Mitchell personally guaranteed the repayment of certain loan financing provided to Bowen Court by the Rhode Island Central Credit Union (credit union). In their complaint in this case, plaintiffs alleged that they chose the credit union as the lender for their proposed East Providence residential real-estate project (project) based on the audits, financial reports, and other work product that defendants, the accounting firm of Ernst & Young LLP and its individual partners (accountants or defendants), provided for many years to the credit union while serving as its accountants. They further alleged that the accountants negligently prepared the credit union's financial statements and, in so doing, negligently misrepresented its financial strength to plaintiffs, some of whom were also members of the credit union. After a temporary receiver took control of the credit union on March 27, 1991, plaintiffs discovered that they had misplaced their reliance on the accountants' work product when they selected the credit union as the project's lender. Indeed, when the credit union's receivership became permanent on May 3, 1991, plaintiffs lost the balance of their $2.1 million loan commitment for the project, having received only $525,000 of
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