State of New York, Workers’ Compensation Bd. v Cody Mgt., Inc., Index No. 3060/13. 3/6/15, (Platkin, J.)

CPLR 3211; Duty of Good Faith and Fair Dealing; Fraud; Fiduciary duty; Contract; breach; Statute of Limitations

By Lauren Tucker | Staff Writer

Plaintiff was a governmental entity charged with the administration of the Workers’ Compensation Law and as successor to the OHI Workers’ Compensation Trust (“the Trust”). In 2009, the Trust ceased offering workers’ compensation insurance due to several reviews of the Trusts assets identifying the Trust as underfunded. In 2011, Plaintiff assumed administration of the Trust and a forensic analysis commissioned by Plaintiff showed an accumulated deficit of $8.27 million. Plaintiff brought suit against defendant, who were contracted to provide auditing and accounting services to the Trust, including reviewing and recording monthly transactions and investment statements in a general ledger and preparing reconciliations.

The complaint alleged numerous deficiencies in the auditing services provided by defendant, including lack of compliance with relevant professional standards and lack of independence. Plaintiffs alleged that defendants knowingly and intentionally employed improper and misleading accounting methods for the purpose of disguising or concealing the true financial condition of the Trust. Plaintiffs asserted nine causes of action, including breach of contract, fraud and breach of fiduciary duty.

Defendants moved to dismiss the complaint under three theories. First, the defendant averred the statute of limitations for the malpractice claim expired. The court distinguished the three-year statue of limitations governing malpractice claims, with the six-year limitations period governing claims of “intentional misconduct,” which included breach of contract and fraud. The court held that Plaintiff’s claims were governed by the six- year limitations period, and thus did not dismiss this claim.

Second, the court held duties owed by an accountant to a client generally are not fiduciary in nature, and that plaintiff’s allegations of misconduct focus on defendants’ audit function, a role that is plainly inconsistent with the existence of a fiduciary relationship. Accordingly, the court dismissed this claim.

Finally, the court denied defendants’ motion to dismiss the fraud claim, holding that Plaintiff’s allegations were specific enough to satisfy the pleading requirements. The complaint alleged that defendant continually and knowingly concealed the true financial condition of the Trust by providing inaccurate or misleading information relative to the Trust’s assets and liabilities and by failing to state the Trust’s true financial condition in its annual audits. Plaintiff further alleged that the Trust and its members relied upon these intentional misrepresentations and sustained damages as a result.

State of New York, Workers’ Compensation Bd. v Cody Mgt., Inc., Index No. 3060/13. 3/6/15, (Platkin, J.).

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