Fact Pattern for Long Answers

Accountant J. Russton Bradshaw (the "Accountant") was retained by Steve May, the owner of May's Custom Tile, to prepare the business's tax return. In 2008, May decided to sell the business and instructed the Accountant to provide financial records and tax returns to a prospective buyer. The potential buyer ultimately refused to enter a deal with May after learning the business's largest client had filed for bankruptcy.

Eventually, Reperex Inc., Brad Ball, and David Ball (collectively, the "Buyers") purchased May's Custom Tile with the help of a business brokerage (the "Broker"). During the negotiations, the Buyers had expressed interest in reviewing the business's financial recordsan idea that May was not partial to. Instead of sending the Buyers the documents, May suggested, and the Buyers agreed, to meet at the Accountant's office for a due diligence meeting.

The meeting lasted two hours or less. May, the Accountant, the Buyers, and the Broker were all present at the meeting. The Accountant's services were paid by May. It is undisputed that the Buyers reviewed many of the financial records assembled by the Accountant.

The Buyers learned soon after their purchase that the business was not what they expected. The Broker had given the Buyers financial statements showing the business had profits of over $300,000 without mentioning the email the Accountant had sent indicating that the business had only made $74,000. Among other things, the Broker had failed to mention bankruptcy of the business's largest client.

The Buyers sued the Broker and the Accountant. In the accountant's case, the Buyers filed claims of negligent misrepresentation, fraud, and breach of fiduciary duty. The Accountant responded by arguing there was no privity of contract between him and the Buyers (i.e., the Accountant did not owe the Buyers a duty of care).

Long Answers:

1. What kind of argument can the Buyers make to assert that there was indeed privity of contract?

Rule: (hints given)

1. Privity of Contract:
2. Restatement:
3. Ultramares:

Analysis:The Buyers can argue that there was privity of contract between the Accountant and the Buyers because the Accountant was retained by Steve May, the owner of May's Custom Tile, to prepare the business's tax return. In 2008, May decided to sell the business and instructed the Accountant to provide financial records and tax returns to a prospective buyer. The potential buyer ultimately refused to enter a deal with May after learning the business's largest client had filed for bankruptcy.

1. Assume for the sake of argument that the Buyers successfully prove privity of contract exists between them and the Accountant. What defenses can the Accountant raise at that point? What additional facts would you like to know before making a decision?