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Performance Motorcars of Westchester6/23/1994
The opinion of the court was delivered by KEEFE, J.A.D.
The issue on appeal is whether the Law Division correctly held that New York law applies to this litigation between plaintiff (Performance) and defendant (Peat Marwick). Applying the governmental interest analysis to the record before us, we conclude that New York does not have the greater interest in governing the particular issue relative to Peat Marwick's duty and reverse the judgment under review.
Inasmuch as Peat Marwick obtained partial summary judgment on this choice of law issue, we must view the facts in a light most favorable to Performance. Plaintiff, a New York corporation, authorized to do business in the State of New Jersey, entered into various motor vehicle lease agreements with Coated Sales, Inc. (Coated), a New Jersey corporation located in Monmouth County. Performance alleged in its complaint that it entered into the transaction with Coated after relying on Coated's financial statements contained in an auditor's report prepared by Peat Marwick for Coated. Coated subsequently declared bankruptcy , causing Performance to suffer significant losses. Performance instituted suit against Peat Marwick alleging that it negligently performed the audit of Coated, thus causing Performance, who relied on the audit report, to be damaged.
Performance concedes that if New York law applies, it would not have a cause of action against Peat Marwick because New York requires privity, or a near privity relationship, in order to maintain a suit against an accountant or auditor. Security Pacific Business Credit, Inc. v. Peat Marwick Main & Co., 79 N.Y.2d 695,
586 N.Y.S.2d 87, 90-91, 597 N.E.2d 1080 (1992). Conversely, if New Jersey law applies, a cause of action is sustainable by a party not in privity with the auditor if the plaintiff is a foreseeable user who is given the audited statement by the audited business entity for a proper business purpose and to influence a business decision of the plaintiff. H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 350-53, 461 A.2d 138 (1983).
In view of the presence of an actual conflict, it becomes our function to "identify the governmental policies underlying the law of each state and how those policies are affected by each state's contacts to the litigation and to the parties." Veazey v. Doremus, 103 N.J. 244, 248, 510 A.2d 1187 (1986). The policy behind New York's law appears to be the protection of New York licensed accountants from an "indeterminate class" of parties who claim to have relied on an auditor's report when dealing with the audited entity. Ultramares Corp. v. Touche, 255 N.Y. 170, 179-80, 174 N.E. 441 (1931). Peat Marwick maintains that New York has an undeniable interest in regulating the extent to which an accounting firm licensed to practice within its borders may be liable for work performed. New Jersey, on the other hand, recognizing that "financial statements have become the benchmark for various reasonably foreseeable business purposes[,]" has elected to compensate "innocent creditors or investors" who have sustained damages "due to an independent auditor's negligence[.]" Rosenblaum, supra, 93 N.J. at 353, 351. In creating such a duty, New Jersey seeks not only to compensate the injured party but also encourage accountants "to exercise greater care leading to greater diligence in conducting audits[,]" thereby elevating the standards of the profession. Id. at 351.
Plaintiff argues that, although New York has contacts to the litigation
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