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Walpert11/21/2000
ed by Magnetics.
After a June, 1993 independent audit found that reported inventory and accounts receivable had been inflated by Magnetics, the Bank of Baltimore, Magnetics' principal lender, called its $2 million loan. As a result, Magnetics was forced to cease operations, and the Bank of Baltimore took possession of the company's premises and liquidated its assets.
The Katzses thereafter sued WS&B;for the losses they suffered as a result of the accounting error that caused Magnetics' collapse. WS&B;moved for summary judgment, arguing that the respondents could not establish that WS&B;owed them a duty, that any act of negligence on WS&B;s part caused injury to them, or that the respondents changed their position to their detriment in reliance on financial statements prepared by WS&B; Central to its argument was WS&B;s assertion that no duty ran to the respondents from its contract with Magnetics for the performance and preparation of audits and reports. In support of its summary judgment motion, WS&B;submitted the affidavit of Patrick M. Tracy, which stated that WS&B;was not asked to express an opinion on the advisability of the respondents or anyone else lending money to Magnetics, nor did it express an opinion as to whether the respondents should secure Magnetics' debt. Furthermore, WS&B;argued that the respondents were not, and could not show that they were, third party beneficiaries to the contract between Magnetics and WS&B;
In response, the respondents proffered, via the affidavit of George Katz, the relationship between the respondents and WS&B; emphasizing the meetings they had prior to the respondents' making the loans to, and securing the debt for, Magnetics. Their opposition essentially stressed that George Katz had several meetings with WS&B;personnel to look over the audits and reports of Magnetics prior to making loans to, or securing loans for, Magnetics, and that WS&B;personnel knew that the Katzses had relied on information supplied by WS&B;in deciding to lend monies to, or to secure loans for, Magnetics. As summarized by the Court of Special Appeals, the affidavit, relating to the $425,000 loan, set forth the following:
"According to Mr. Katz, ` n connection with the $425,000.00 loan, sometime between November 1, 1989 and February 1, 1990, Phillip Katz, Mr. Tracey and I met face to face in Mr. Tracey's office at Walpert, Smullian & Blumenthal for the express purpose of discussing the above-mentioned loan.' Mr. Katz continued:
`The purpose in meeting with Mr. Tracey was for me to determine if it was advisable to make that [$425,000] loan to Magnetics based upon the then- existing financial condition as that related to its ability to repay the loan in accordance with the loan terms. . . .
`During that meeting, Mr. Tracey had presented Magnetics, Inc. a cash flow analysis and a projected profit and loss statement for the coming year based on the anticipated cash flow and sales.'"
"Mr. Katz further stated, ` n connection with my loan analysis, Mr. Tracey provided me with a copy of the October 31, 19 Magnetics, Inc. audit. . . .' Mr Katz swore that, at the meeting with Mr. Tracey, `I made the WS&B;representatives aware that I would consider lending money to Magnetics, [but the loan] was dependent on Magnetics' financial condition and the information which WS&B;provided him, which included WS&B;financial reports prepared for Magnetics."'
That knowledge, argued the respondents, was enough to trigger a duty of care to them from WS&B;
At the hearing on the motion for summary judgment, the respondents' counsel s
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