Appeal by plaintiffs from order filed 6 June 2002 by Judge W.
Douglas Albright in Guilford County Superior Court. Heard in the
Court of Appeals 26 March 2003.
Wyatt Early Harris Wheeler LLP, by William E. Wheeler and
Frederick G. Sawyer, for plaintiff appellants.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Jim
W. Phillips, Jr. and Jessica M. Marlies, for defendant
appellee.
BRYANT, Judge.
Sherrill W. Shaw and Ella June Shaw (collectively plaintiffs)
appeal an order entered 6 June 2002 dismissing their complaint
against PricewaterhouseCoopers, LLP (defendant) for failure to
state a claim upon which relief can be granted under Rule 12(b)(6)
of the North Carolina Rules of Civil Procedure.
In their complaint filed 6 March 2002, plaintiffs presented
claims based on defendant's involvement in the accounting aspects
of a purchase agreement between plaintiffs and Living.com, anInternet-based business, for (1) negligent misrepresentation, (2)
breach of contract on the basis of third-party beneficiary
liability, (3) negligence, and (4) unfair and deceptive practices.
The complaint alleged that, on 26 March 1999, plaintiffs, the
former sole shareholders of Shaw Furniture Galleries, Inc. (Shaw
Furniture), executed a purchase agreement with Living.com in which
Living.com agreed to buy all the outstanding shares of Shaw
Furniture. Pursuant to the purchase agreement, Living.com was to
pay $5.6 million for the shares, with a price adjustment dependent
on the net worth of Shaw Furniture on the closing date.
The purchase agreement assigned to defendant, Living.com's
accounting firm, the task of preparing the closing date balance
sheet (CDBS) reflecting Shaw Furniture's net worth. The purchase
agreement further specified that, in preparing the CDBS, defendant
was to use the “historical accounting policies” utilized by Shaw
Furniture rather than the “generally accepted accounting
principles” (GAAP). The CDBS dated 31 May 1999 and delivered to
plaintiffs and Living.com, however, stated that defendant had
conducted the audit “in conformity with generally accepted
accounting principles.” As a result, plaintiffs alleged, the CDBS
did not accurately reflect Shaw Furniture's net worth. According
to plaintiffs:
[H]ad [defendant] prepared . . . [Shaw
Furniture's] CDBS in accordance with the basis
of accounting required by the [p]urchase
[a]greement, [Shaw Furniture's net worth]
would have been $3,047,352.00[, which] would
have resulted in an adjustment of the
[p]urchase [p]rice of $247,352.00 inplaintiffs' favor, plus the return of escrow
funds of $1.1 million.
The complaint further stated that, “[a]fter receiving the CDBS,
plaintiffs utilized the dispute resolution procedure in the
[p]urchase [a]greement to contest [defendant's] determination of
[Shaw Furniture's net worth].”
(See footnote 1)
In August 2000, Living.com filed
for bankruptcy, and plaintiffs were only able to recover
$600,000.00 of the escrow funds.
On 7 May 2002, defendant filed a motion to dismiss plaintiffs'
complaint for failure to state a claim upon which relief could be
granted. The trial court granted the motion in an order filed 6
June 2002.
___________________________
The issues are whether: (I) plaintiffs relied on defendant's
preparation of the CDBS; (II) plaintiffs were intended
beneficiaries of defendant's auditing contract with Living.com; and
(III) plaintiffs suffered foreseeable harm.
I
The essential question on a motion under
Rule 12(b)(6) “is whether the complaint, when
liberally construed, states a claim upon which
relief can be granted on any theory.” Thetrial court must treat the allegations in the
complaint as true, but the court is not
required to accept as true any conclusions of
law or unwarranted deductions of fact. When
the complaint fails to allege the substantive
elements of some legally cognizable claim, or
where it alleges facts which defeat any claim,
the complaint must be dismissed.
Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 56, 554 S.E.2d
840, 844 (2001) (citations omitted). With respect to claims for
negligent misrepresentation, this State has “adopted the
Restatement 2d [of Torts] definition of negligent
misrepresentation.”
Driver v. Burlington Aviation, Inc., 110 N.C.
App. 519, 525, 430 S.E.2d 476, 480 (1993). Section 552 of the
Restatement 2d provides:
(1)
One who, in the course of his business,
profession or employment, or in any other
transaction in which he has a pecuniary
interest,
supplies false information for the
guidance of others in their business
transactions, is subject to liability for
pecuniary loss caused to them by their
justifiable reliance upon the information, if
he fails to exercise reasonable care or
competence in obtaining or communicating the
information.
(2) Except as stated in Subsection (3), the
liability stated in Subsection (1) is limited
to loss suffered
(a) by the person or one of a limited group of
persons for whose benefit and guidance he
intends to supply the information or knows
that the recipient intends to supply it; and
(b) through reliance upon it in a transaction
that he intends the information to influence
or knows that the recipient so intends or in a
substantially similar transaction.
Restatement (Second) of Torts § 552 (1977) (emphasis added). “[T]o
withstand [a] motion to dismiss, plaintiffs . . . must [thus] be
able to show that they justifiably relied -- to their detriment --
on the information provided them by defendant[].”
Simms v.
Prudential Life Ins. Co. of Am., 140 N.C. App. 529, 532-33, 537
S.E.2d 237, 240 (2000) (emphasis omitted).
In this case, the purchase agreement explicitly granted
plaintiffs the right to review and reject the CDBS prepared by
defendant. Moreover, plaintiffs admitted in their complaint that
they in fact exercised this right by contesting defendant's
determination of Shaw Furniture's net worth. Accordingly, there
was no reliance by plaintiffs on either defendant's representation
to use a certain accounting method or defendant's actual
calculations. As the complaint clearly alleges facts that defeat
plaintiffs' claim for negligent misrepresentation, the trial court
properly dismissed this cause of action.
See Oberlin Capital, 147
N.C. App. at 56, 554 S.E.2d at 844
.
II
Plaintiffs also pursued an action against defendant for breach
of contract. In order to establish a breach of contract claim
based on the third-party beneficiary doctrine, a plaintiff's
allegations must show: (1) the existence of a valid and enforceable
contract (2) between two other persons, (3) which was entered into
for the plaintiff's direct, and not incidental, benefit.
Leasing
Corp. v. Miller, 45 N.C. App. 400, 405-06, 263 S.E.2d 313, 317
(1980). “A person is a direct beneficiary of [a] contract if the
contracting parties intended to confer a legally enforceablebenefit on that person.”
Holshouser v. Shaner Hotel Grp. Props.
One, 134 N.C. App. 391, 400, 518 S.E.2d 17, 25 (1999),
aff'd, 351
N.C. 330, 524 S.E.2d 568 (2000). It does not suffice that a
contract benefits the plaintiff in some way “if, when the contract
was made, the contracting parties did not intend it to benefit the
plaintiff directly.”
Id. In ascertaining the intent of the
contracting parties, the court should not only consider the actual
language of the contract but also the circumstances surrounding the
transaction.
Id. In addition, in analyzing a plaintiff's
complaint under Rule 12(b)(6), “'the contract must be construed
strictly against the party seeking enforcement.'”
Id. (quoting
Chemical Realty Corp. v. Home Fed'l Savings & Loan, 84 N.C. App.
27, 34, 351 S.E.2d 786, 791 (1987)).
The record in this case does not include the auditing
agreement between Living.com and defendant; however, the terms of
the purchase agreement between plaintiffs and Living.com lend
sufficient insight to determine defendant's and Living.com's
intent. As noted above, the purchase agreement granted plaintiffs
the right, exercised by plaintiffs, to review and reject the CDBS
prepared by defendant. Because the purchase agreement thus reveals
that plaintiffs were not intended to rely on the figures provided
by defendant, they were also not intended to directly benefit from
them. Moreover, any disagreement with regard to the accounting
terms in the CDBS, including Shaw Furniture's net worth, was to be
settled between plaintiffs and Living.com, or if this could not be
accomplished, by an independent accounting firm. As such,plaintiffs' complaint fails to show that Living.com and defendant
“intended to confer a legally enforceable benefit on [plaintiffs].”
Id. Accordingly, the trial court did not err in dismissing
plaintiffs' breach of contract claim.
III
We now consider plaintiffs' negligence claim and whether
plaintiffs suffered foreseeable harm as a result of defendant's
actions. “A defendant is liable for his negligence if the
negligence is the proximate cause of injury to a person to whom the
defendant is under a duty to use reasonable care.”
Hart v. Ivey,
332 N.C. 299, 305, 420 S.E.2d 174, 178 (1992). Even assuming
defendant in this case bore a duty of care with respect to
plaintiffs when it prepared the CDBS, plaintiffs have failed to
show foreseeable harm in light of the fact that the purchase
agreement granted them the power to reject defendant's work and
also provided a mechanism for dispute resolution. Any economic
loss plaintiffs may have suffered in this case was due to
Living.com's bankruptcy filing. Defendant, however, cannot be made
to bear responsibility for this intervening factor.
See Muse v.
Charter Hosp. of Winston-Salem, 117 N.C. App. 468, 476, 452 S.E.2d
589, 595 (no proximate cause where the defendant is negligent but
“[t]he intervening cause . . . produces a result which would not
otherwise have followed, and which could not have been reasonably
anticipated”),
aff'd, 342 N.C. 403, 464 S.E.2d 44 (1995). The same
rationale applies to plaintiffs' unfair and deceptive practices
claim.
See Walker v. Branch Banking & Tr. Co., 133 N.C. App. 580,585, 515 S.E.2d 727, 730 (1999)
(“even assuming
arguendo that [the]
defendants engaged in an unfair trade practice, [the] plaintiff has
failed to show how [the] defendants' conduct proximately caused
actual injury to [the] plaintiff or his business”). The trial
court therefore properly dismissed plaintiffs' claims for
negligence and unfair and deceptive practices.
(See footnote 2)
Affirmed.
Judges TIMMONS-GOODSON and GEER concur.
Report per Rule 30(e).
Footnote: 1