Introduction

The case of Esther O. Blumberg, et al. v. Touche Ross Co., et al. (514 So. 2d 922) adjudicated by the Supreme Court of Alabama on September 18, 1987, represents a pivotal moment in the intersection of contract and tort law within the realm of professional services. This case centered on the plaintiffs, Blumberg Sons, a partnership operating a retail department store, who engaged the services of Touche Ross Co., a renowned accounting firm, to audit their balance sheet. The core legal issue revolved around whether the plaintiffs could pursue a claim based on breach of contract after the statute of limitations for tort claims had expired.

Summary of the Judgment

The Alabama Supreme Court held that the plaintiffs, Blumberg Sons, were entitled to proceed with an assumpsit action against Touche Ross despite the one-year tort statute of limitations having expired. The core determination was that the plaintiffs could invoke a breach of contract claim based on the express agreement with Touche Ross. The court reversed the trial court's decision to grant summary judgment in favor of Touche Ross and remanded the case for further proceedings.

Analysis

Precedents Cited

The judgment extensively reviewed both Alabama-specific cases and authoritative cases from other jurisdictions to navigate the lack of direct Alabama precedent. Significant among these were:

• City of East Grand Forks v. Steele: The court held that negligent auditing could constitute a breach of contract.
• Dantzler Lumber Export Co. v. Columbia Casualty Co.: Recognized that a client's cause of action could arise from either breach of contract or tort.
• Paver Wildfoerster v. Catholic High School Ass'n: Influential New York case that distinguished between personal injury and pecuniary damage in determining the applicable statute of limitations.
• Video Corp. of America v. Frederick Flatto Assoc., Inc.: Affirmed that accounting malpractice could be pursued under contract rather than tort in New York.

These precedents collectively influenced the Alabama Supreme Court's stance that accountant negligence could indeed be framed as a breach of contract, thereby bypassing the expired tort statute of limitations.

Legal Reasoning

The Supreme Court of Alabama examined whether the plaintiffs could frame their actions under contract rather than tort. The crux of the reasoning was that the engagement letter explicitly promised adherence to generally accepted accounting principles and auditing standards, thereby constituting an express contractual obligation to exercise due care. The court emphasized that in Alabama, such express contractual promises to utilize due care create liability under both contract and tort when breached by negligence.

The court also considered the law from other jurisdictions, particularly New York, to fill the gap in Alabama's jurisprudence. It found persuasive the New York approach that allows plaintiffs to choose between contract or tort remedies in cases of professional negligence underpinning a contractual relationship.

Impact

This judgment has significant implications for both the legal and accounting professions within Alabama:

• For Lawyers and Litigants: It broadens the avenues available for plaintiffs to seek redress in cases of professional negligence, reinforcing the importance of contractual agreements in defining remedies.
• For Accounting Firms: It underscores the necessity for explicit contractual terms regarding standards of practice and highlights the potential dual liability under both contract and tort.
• On Statute of Limitations: It clarifies that contractual actions can extend beyond tort limitations, thereby affecting the timeliness and strategy in filing lawsuits for professional negligence.

Future cases in Alabama involving professional negligence will reference this precedent to determine the appropriate legal framework for claims, likely leading to a more favorable position for plaintiffs in professional malpractice suits.

Complex Concepts Simplified

Assumpsit

Assumpsit is a legal term referring to a cause of action for breach of an implied or express contract. In this case, the plaintiffs pursued an assumpsit action based on the express contractual agreement with Touche Ross.

Statute of Limitations

A statute of limitations sets the maximum time after an event within which legal proceedings may be initiated. The judgment discusses both the one-year tort statute and the two-year contract statute, highlighting how the latter allowed the plaintiffs to file their claim despite the expiration of the former.

Professional Negligence

Professional negligence occurs when a professional fails to perform their duties to the standard expected in their field, resulting in harm to their client. Here, Touche Ross was alleged to have negligently audited the plaintiffs' financial statements.

Dual Liability in Contract and Tort

Dual liability means that a party can be held responsible for both contract and tort claims arising from the same act. The court determined that Touche Ross could be liable under both theories, offering plaintiffs multiple avenues for redress.

Conclusion

The Supreme Court of Alabama's decision in Blumberg v. Touche Ross Co. establishes a crucial legal precedent that empowers plaintiffs to seek remedies for professional negligence under contractual claims, even when tort statues of limitations have lapsed. By recognizing the enforceability of express contractual obligations to exercise due care, the court not only broadens the scope for holding professionals accountable but also reinforces the binding nature of professional service agreements. This judgment thus plays a pivotal role in shaping the legal landscape for professional accountability, offering a more flexible and plaintiff-friendly framework for addressing negligence in professional services.