## Facts

- Canty Roofing and Sheetmetal, Inc. (CRS), a Massachusetts roofing contractor, routinely needed payment and performance bonds for public works projects.
- North American Specialty Insurance Company (NASI), a surety, began issuing bonds for CRS after reviewing CRS’s corporate finances and the owner’s personal finances.
- Dias & Lapalme (D&L) and partner David Lapalme served as CRS’s longtime accountants, preparing annual financial statements and tax returns.
- After CRS changed ownership, D&L prepared a 1995 financial statement that allegedly failed to clearly disclose the ownership change and implied the prior owner remained the sole shareholder.
- NASI claimed it relied on the 1995 financial statement in continuing to bond CRS projects.
- CRS later defaulted on bonded projects, and NASI incurred losses approaching $2 million.
- NASI alleged D&L knew or should have known the 1995 statement would be provided to and relied upon by a surety in deciding whether to issue or continue bonds.

## Issues

1. Under Massachusetts law governing negligent misrepresentation by accountants, does an accountant owe a duty of care to a non-client surety that relied on a client’s financial statement when the accountant allegedly knew the statement would be used to obtain bonding, but did not know the identity of the particular surety?
2. Can a non-client surety maintain a Massachusetts deceptive trade practices claim against an accountant based on the same conduct where no qualifying duty or directed conduct toward the surety is shown?

## Decision

- The First Circuit affirmed summary judgment for Lapalme and D&L.
- Even assuming negligent misstatements in the 1995 financial statement and NASI’s reliance, NASI did not fall within the limited class of third parties to whom the accountants owed a duty under Massachusetts law.
- Because the negligent misrepresentation claim failed as a matter of law, the deceptive trade practices claim also failed on the record presented.

## Legal Principles

- Massachusetts limits accountant liability for negligent misrepresentation to non-clients consistent with Restatement (Second) of Torts § 552: liability extends only to persons (or a limited class) for whose benefit and guidance the accountant intends to supply the information, or knows the client intends to supply it, for a particular transaction or type of transaction.
- General foreseeability that financial statements may be used to obtain credit or bonding is insufficient to create a duty to an indeterminate group of potential lenders or sureties.
- To impose duty under the limited-class approach, the plaintiff must show the accountant’s knowledge of reliance by a specifically identified party or a narrowly defined, intended group; awareness that “some surety” might rely is too diffuse.

## Conclusion

The court held that a surety could not recover from an accounting firm for negligent misrepresentation or related deceptive trade practices when the accountants, at most, knew the client’s financial statement might be used to obtain bonding from an unspecified surety, placing the plaintiff outside the limited class protected by Massachusetts law.


North American Specialty Ins. Co. v. Lapalme, 258 F.3d 35 (1st Cir. 2001)