Thursday, November 17, 2011

Claims Against Law Firm Barred

The West Virginia Supreme Court of Appeals affirmed the grant of summary judgment to Kutak Rock in an action brought by an accounting firm found liable to the FDIC for a negligent bank audit.

The court held that the accounting firm:

...may not file a subsequent action against the bank's law firm alleging direct claims for fraud, negligent misrepresentation and tortious interference with contract where: (1) the law firm, as joint tortfeasor, executed a prior, good faith settlement with the FDIC, thereby extinguishing the accounting firm's right of contribution, (2) the accounting firm was awarded a credit reduction on the verdict based on the settlement, (3) the direct claims alleged by the accounting firm arose from the same facts and circumstances which contributed to the bank's loss and resulted in judgment obtained by the FDIC, (4) the damages sought by the accounting firm against the law firm are substantially the same as the judgment obtained by the FDIC, (5) the accounting firm knew in advance that the audit would involve a high risk of misrepresentation of data by bank managers and (6) the engagement of the accounting firm to perform the audit, originating through the Office of the Comptroller of the Currency, performed a public function.

The claims asserted against the firm "are, in reality, contribution claims rather than direct or independent claims and are, therefore, barred by the May 2003 settlement agreement made in good faith between Kutak and the FDIC."

The underlying representation involved the activities of the First National Bank of Keystone, which had implemented a "securitization" strategy that had led to disaster.  (Mike Frisch)

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