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HARTFORD ACCIDENT & INDEM. CO. v. PARENTE

October 1, 1985

Hartford Accident And Indemnity Company, Plaintiff
v.
Parente, Randolph, Orlando, Carey And Associates; Northeastern Bank of Pennsylvania; Kenneth J. Sebastianelli; Mary A. Jones; Joseph J. Palma; and Deborah Palma; Defendants and Northeastern Bank Of Pennsylvania, Third-Party Plaintiff v. Peat, Marwick, Mitchell & Co. and Old Forge Bank, Third-Party Defendants


William W. Caldwell, United States District Judge.


The opinion of the court was delivered by: CALDWELL

William W. Caldwell, United States District Judge

 I. Introduction

 Third party defendant, Peat, Marwick, Mitchell & Co. ("PMM") has moved, pursuant to Rule 12(b), to dismiss the third party complaint filed by Parente, Randolph, Orlando, Carey and Associates ("Parente, Randolph"). Parente, Randolph seeks contribution and indemnification from PMM on the basis that in performing accounting services for its client, Northeastern Bank of Pennsylvania ("Northeastern"), PMM breached its duty of professional responsibility. PMM contends, however, (1) that the complaint fails to state a claim for professional negligence and (2) that it was improperly joined as a third party defendant under Fed. R. Civ. P. 14. After consideration of the briefs of the parties and the relevant case law, we agree with PMM that the complaint must be dismissed.

 II. Background

 This action arises out of a complaint filed on May 7, 1985 by Hartford Accident and Indemnity Company ("Hartford") against the defendants to recover damages resulting from the embezzlement of approximately $ 2,000,000 from Old Forge Bank ("Old Forge") by Joseph Palma. Hartford, the insurer of Old Forge, indemnified Old Forge for its loss and now seeks recovery. In the original complaint, Hartford alleged that Parente, Randolph breached its duty of professional care to Old Forge by failing to discover Palma's defalcation and caused Old Forge's loss. The complaint also alleges that Northeastern, as the holder of Old Forge's depository account, is also liable for Old Forge's loss because it failed to monitor and safeguard the depository account. In response to Hartford's complaint, Parente, Randolph filed a third party complaint against PMM on June 27, 1985 alleging that PMM is liable for any losses which it may sustain as a defendant in the Hartford action. More specifically, Parente, Randolph contends that the failure of PMM, as Northeastern's auditor, to discover the misappropriation by Palma constituted professional negligence.

 III. Discussion

 A. Standard for Dismissal

 When considering a motion to dismiss a complaint pursuant to Fed. R. Civ. P. 12(b), we must accept all allegations in the complaint as true, and must construe the complaint liberally in the light most favorable to the plaintiff. Gomez v. Toledo, 446 U.S. 635, 636 n.3, 64 L. Ed. 2d 572, 575 n.3, 100 S. Ct. 1920, 1921 n.3 (1980); Jennings v. Shuman, 567 F.2d 1213, 1216 (3d Cir. 1977). With this in mind we will address the issues raised by PMM.

 B. The Privity Requirement

 PPM argues that the complaint fails to state a claim for professional negligence because PMM had no contractual relationship with either Old Forge or Parente, Randolph. PMM contends that under Pennsylvania law a claim for professional malpractice may not be maintained unless there is privity between the parties. We agree.

 Pennsylvania courts have long held that privity between parties is required to maintain an action for professional negligence. In Landell v. Lybrand, 264 Pa. 406, 107 A. 783 (1919), the Pennsylvania Supreme Court determined that a non-privy plaintiff could not sustain a professional negligence action against an accountant. The court found that:

 
There were no contractual relations between the plaintiff and defendants, and, if there is any liability from them to him, it must arise out of some breach of duty, . . . . The averment in the statement of claim is that the defendants were careless and negligent in making their report; but the plaintiff was a stranger to them and to it, and, as no ...

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