A New Jersey court has held that an accountant retained by the court to perform a forensic analysis of the expenditures made by a fiduciary has absolute immunity from liability to the parties in the lawsuit. Sable v. Abo (App. Div Jan. 20, 2010) grew out of a chancery suit brought against Sable, alleging that he had exercised improper influence over his incapacitated father and had converted his father’s assets for his own benefit. After the chancery court had ruled against Sable and removed him as the fiduciary, it appointed Abo as the temporary guardian of the father’s property and ordered that Abo review the financial transactions taken by Sable. Upon his appointment, Abo wrote to the court stating his understanding that the court would determine his scope of work, and that his reports would be “submitted solely to the Court and shall not be furnished to any other person or party, unless the Court so directs and requires.” His report and his later testimony showed that Sable had made certain improper or unsupported expenditures. The chancery court ultimately entered judgment against Sable, finding that he had violated his fiduciary duties and engaged in egregious conduct, and awarded damages of nearly $800,000, including the cost of litigation and Abo’s fees.
Sable then sued Abo claiming that the court’s judgment was tainted because Abo had been negligent in performing his work. The trial court dismissed Sable’s lawsuit, finding that Abo was entitled to absolute immunity from liability. The Appellate Division affirmed.
The appeals court, too, found that Abo, as “a witness in a judicial or quasi-judicial proceeding enjoy[ed] an absolute immunity from civil suit for his words and actions relevant to the judicial proceedings.” Although Abo had “a duty to apply established accounting principles to the financial facts as [he] found them,” that duty was owed to the court that had appointed him, not to Sable. The Appellate Division reasoned that the court’s ability to obtain a forthright, candid and independent evaluation of the financial transactions would be “severely compromised” without absolute immunity for the reports and testimony provided to the court.
The Appellate Division also rested its decision on a separate ground—that Sable’s claim was barred by the Accountants Liability Act, N.J.S.A. 2A:53A-25(b). Under the Act, a non-client can only sue an accountant for negligence if three conditions are met. The accountant must: (1) know at the time of the engagement that his services would be made available to a third party who was specifically identified to the accountant in connection with a specified transaction; (2) know that the third party intended to rely on his services in connection with that transaction; and (3) directly express to the third party, by words or conduct, the accountant’s understanding of the third party’s intended reliance on the accounting services.
The court found none of those requirements were met in Sable. First, Abo had clearly stated his understanding that his accounting services were to be made available to the court and only to others at the court’s discretion. Second, Abo could not have intended Sable to rely on his findings because they were adverse to him. Third, Sable had presented his own expert testimony and analysis to contradict the adverse matter in Abo’s report, confirming that he did not rely on it.
Sable should provide great comfort to accountants and other professionals who are appointed by the courts to act as independent experts. It also illustrates the prophylactic benefits of having an engagement letter even for a court-appointed expert because it can precisely define the scope of the engagement and to whom the services are to be rendered.