Legal Question in Business Law in California

Re: Duty of Care owed to third parties?

This sounds like a law school homework question; the facts parallel those fould in casebooks in Torts class. If you are a law student, study the cases and don't bother the LawGuru attorneys to do your homework for you. If this is a bona fide question from someone who is affected by a negligently-performed audit, please be advised that (a) this is a legal question on which there is a lot of case law, and (b) the answer as to whether there are "reasonable grounds" for a lawsuit against the accounting firm depends upon facts not presented in the question that are needed to determine "forseeability" and other aspects of proximate cause. It would also be necessary to determine whether there is sufficient evidence of negligence; it's possible the accounting firm was itself a victim of the fraud and deception of the client business.

Re: Duty of Care owed to third parties?

I would need more facts to answer this question more fully. If the accountant's opinion was issued as an independent auditor and it was unqualified, then yes, there are reasonable grounds for the bank to sue the accounting firm. An independent auditor owes a duty of care to reasonably foreseeable plaintiffs who rely on negligently prepared and issued unqualified audited financial statements.

Yes, the accounting firm owed a duty of care. The question is deeper than that: rather, it is whether the accounting firm breached that duty and further, whether the breach was a proximate cause of the bank's damage. These are questions which need more facts in order to answer.

In addition, it is unclear why the bank has not pursued Company A in bankruptcy. If the company truly defrauded the bank, then the bank likely has valid claims against the company and perhaps its officers/directors, depending upon certain facts. These types of claims are brought within the bankruptcy, by way of what is known as an adversary action.

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Re: Duty of Care owed to third parties?

Under F.R. B. P. Rule 4004, in a chapter 7 liquidation case, a complaint objecting debtor�s discharge under Section 727 (a) shall be fixed no later than the 60 days after first date set for the meeting of creditors under Section 341 (a. the bank should initiate an adversary proceeding objecting debtor's dischargability because the loan was procurred through fraud.