In a widely watched and long-awaited decision, the North Carolina Supreme Court definitively determined that an independent auditor has no fiduciary duty to the company, overturning a 2014 Court of Appeals decision finding that such a duty existed. The court, however, was evenly divided on the issue of whether the company’s claims were barred by the defenses of in pari delicto and contributory negligence, leaving undisturbed (albeit without precedential value) the Court of Appeals’ decision that the defenses did not bar the remaining claims. Certified public accountants live to fight another day for the validity of the in pari delicto defense in North Carolina.
Many professionals work on a contingency fee basis. If they achieve a favorable result for their client, they receive a percentage of the profit; no win, no fee. The basic arrangement assumes that the professional will continue to represent the client throughout the duration of the matter. But what are a professional’s rights when a client decides to hire new counsel in the middle of a case?
Unmanned aircraft, more commonly known as drones, are becoming increasingly popular in the civilian market. Advances in technology have made drones easier to fly and have expanded their utility for recreational users. Businesses likewise view drones as a new tool to increase their operations and bring new value to consumers. For instance, Amazon, recently unveiled its plans to use drones to make same-day deliveries to customers. But what liability issues await?
The accountant-client privilege doesn’t seem to get as much attention as the other more commonly used privilege defenses such as attorney-client or doctor-patient. However, a case out of the Illinois Supreme Court earlier this year is giving the other “a/c privilege” a lot of press. While not all states recognize this privilege, the ones that do generally find that the client is the holder of the privilege and requires the client’s consent to disclose any information exchanged between the accountant and client. Illinois, however, has decided to take a slightly different approach.
In a case of first impression before the Delaware Chancery Court, the defense of in pari delicto was applied in favor of an auditor to defeat claims brought by the receiver of several insolvent insurance entities. This decision sets important and favorable precedent for the defense of accounting firms and other third parties when they become implicated in cases alleging corporate wrongdoing on the part of other defendants.
LinkedIn is perhaps the go to social media site for professionals seeking to promote their achievements and build their brand. LinkedIn has carved a niche within the social media landscape by integrating networking capabilities with the specific needs of professionals hoping to build relationships. Of course, the site also allows users to “endorse” a connection for certain practice areas or to write recommendations as to the user’s skillset. It is this component of the site that has generated professional ethics issues and opinions. Moreover, the distinction between permissible networking and improper advertising is not always well defined. The NY County Lawyers Association Professional Ethics Committee recently published a formal ethics opinion that provides guidance to attorneys using sites such as LinkedIn.
Although not nearly as satisfying, in many ways closing a file is just as important to a professional as opening one. How and when to close a file is a component of best practices. Most professionals follow some document retention protocol (and if you don't, you should). But an interesting wrinkle arises when it's not entirely clear when the engagement has come to an end. Some cases are withdrawn, some clients sign an engagement letter but do not pursue the claim, some clients decide to retain new counsel without documenting the decision. To take into account these uncertainties, professionals must implement safeguards to monitor each client relationship and, when necessary, to document that the professional relationship has ended. By keeping files up-to-date, both old and new, professionals can help to avoid many hazards and ethical dilemmas.
April 15 is looming. For tax professionals across the country, the emergence of spring also means it’s time to hunker down to prepare tax returns. In the midst of preparing returns and meeting deadlines, tax professionals must also consider the reality that tax advice and return preparation reportedly result in the greatest number of claims against accountants. Some good news is that there are common themes amongst the types of claims facing tax professionals which provide insight and valuable lessons. In particular, the IRS publishes an annual list of the “dirty dozen” tax scams which can provide an important risk management tool to the APL community. In its recently published 2014 list, identify theft and phone scams top the charts.
Invariably, during the representation of a professional, defense counsel may be asked by his or her adversary: who hired you? For a variety of reasons, opposing counsel may be interested in whether you were retained directly by the professional or you were appointed as defense counsel by an insurance company. A perfectly reasonable and appropriate response to this question could be: it’s none of your business.
A vast majority of professional malpractice matters arise from an alleged conflict of interest. Legal malpractice claims, for example, most frequently involve conflicts of interest; a whopping 46% according to a recent study. Perhaps this is no surprise. According to one scholar, the “exercise of his independent professional judgment” goes to the “heart of the skills” which a professional offers to his client. Thus, lawsuits typically follow in the event of a breach – or perceived breach - of that independence. Of course, there is no bright line test that delineates what a client may perceive as a conflict and therefore the conflict of interest waiver may be the professional’s saving grace.
Alex Rodriguez is widely considered one of the greatest baseball players of his generation, but much of his career is filled with controversy. The most recent debate concerns A-Rod's receipt of a hefty salary from the Yankees although he has not played a single game this year. Reportedly, the 12-time All Star is now grumbling that the Yankees are intent on keeping him off of the field so as to trigger insurance dollars. In December 2007, Rodriguez and the Yankees agreed to a 10-year, $275 million contract; at the time, the richest contract in baseball history. Following his underwhelming performance in the 2012 playoffs, and his off-season surgery which may not heal this year, A-Rod is reportedly questioning whether the Yankees are conspiring to keep him on the disabled list so as to trigger an insurance clause to cover his albatross-like contract.
Many classes of professionals utilize engagement letters with limitation of liability language. For example, accountants, real estate agents and home inspectors often include in their engagements a hold harmless or other clause with the goal of limiting potential damages. Such a clause will establish the extent of exposure, if any, that the professional can be held liable for should problems arise with the engagement. The question of whether the clause is enforceable is state specific and somewhat unpredictable.
Accountants are well aware that clients, former clients, and others periodically request (or sometimes demand) copies of the accountant’s work-papers. The question invariably is: who owns those materials? Moreover, what is the accountant obligated to turn over and what categories of materials may be withheld? An accountant, and those that represent them, must be aware of the critical legal and regulatory issues facing the accounting profession when handling such a request.