The New York Court of Appeals also heard argument on Tuesday, September 14, 2010, in Sykes v. RFD Third Avenue 1 Associates, a direct appeal from a First Department decision addressing the doctrine of near privity in negligent misrepresentation cases.
Although the case does not involve auditors, the lower courts relied heavily upon caselaw developed in the auditor liability context to determine the scope of the duty owed by a design professional. Plaintiffs, purchasers of a condominium, alleged that they relied on representations in an offering document that were based on information that a mechanical engineering company provided to a condominium developer for the purpose of including in the condominium offering documents. Plaintiffs alleged that the HVAC (heating, ventilation and air conditioning) system in the condominium failed to perform in compliance with the representations made in the offering documents. Although it was conceded that plaintiffs and the engineering company were not in direct privity, plaintiffs claimed that the engineering company owed a duty to them pursuant to the doctrine of "near privity," because the engineering company knew that the information would be relied upon by prospective condominium purchasers generally.
The First Department reversed the trial court's denial of a motion to dismiss, holding plaintiffs failed to adequately allege that the engineering company knew that those specific purchasers would rely on the representations. Argument before the New York Court of Appeals focused on whether representations made to unidentified prospective purchasers generally, as opposed to identified specific purchasers, can satisfy the "known party" and "linking conduct" prongs of the three-part test articulated by the Court of Appeals in Credit Alliance and Parrott v. Coopers & Lybrand. A copy of the First Department decision is available here. Copies of the appellate briefs filed in the New York Court of Appeals are available here under 'Sykes Briefs'
The New York Court of Appeals is expected to render its decision in the fall of 2010.