Compass Bank v. King, Griffin & Adamson P.C.

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED OCTOBER 21, 2004
October 18, 2004
IN THE UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT Clerk
__________________________

No. 03-11234
__________________________

COMPASS BANK,
Plaintiff - Appellant,

versus

KING, GRIFFIN & ADAMSON P.C.;
LAWRENCE D. KING,

Defendants - Appellees,

___________________________________________________

Appeal from the United States District Court
For the Northen District of Texas
(No. 3-01-CV-2028-N)
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Before DeMOSS, STEWART, and CLEMENT, Circuit Judges.

PER CURIAM:

Compass Bank appeals the dismissal of its complaint against King, Griffin & Adamson, P.C.

and Lawrence King. It also moves this Court to certify the following question to the Texas Supreme

Court: whether Texas uses an actual knowledge test or a foreseeability requirement for negligent

misrepresentation claims against accountants. Compare RESTATEMENT (SECOND) OF TORTS § 522

(1977) (requiring actual knowledge), with Blue Bell v. Peat, Marwick, Mitchell & Co., 715 S.W.2d
408 (Tex. App.—Dallas 1986, writ ref’d n.r.e.) (requiring foreseeability). While certifying the

question would be “determinative” in the sense that it would resolve the case, “we do not use

certification as a panacea for resolution of those complex or difficult state law questions which have

not been answered by the highest court of the state.” Patterson v. Mobil Oil Corp., 335 F.3d 476,

487 (5th Cir. 2003) (quoting Free v. Abbott Labs, Inc., 164 F.3d 270, 274 (5th Cir. 1999)). In light

of the recent decision in Tara Capital Partners I, L.P. v. Deloitte & Touche, L.L.P., No. 05-03-

00746-CV, 2004 WL 1119947 (Tex. App.—Dallas May 20, 2004), and the cogent and sound

arguments of the district court, Compass Bank v. King Griffin & Adamson P.C., 2003 WL 22077721,

at *2–4 (N.D. Tex. 2003), we are persuaded that the Restatement’s actual knowledge standard

applies to accountants in Texas. As a consequence, we deny the motion for certification.1

For those same reasons, the decision of the district court is AFFIRMED.

1
The dissent argues that this question should be certified to the Supreme Court because
there is not “sufficient controlling guidance from the Texas Supreme Court in McCamish.” __
F.3d __ (5th Cir. 2004) (DeMoss, J., dissenting). However, the Texas Supreme Court has
adopted the Restatement for torts of negligent misrepresentation in toto. See Fed. Land Bank
Ass’n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). If that court had fashioned
exceptions to the Restatement for different professions, we might be persuaded that there is an
open question in this case. It has not done so. Without a clear line of Texas appellate court
holdings to the contrary, there is no reason to think that the Texas Supreme Court would deviate
from its well-established rule and therefore no reason to certify the question to that court.
DeMOSS, Circuit Judge, dissenting:

I respectfully dissent from the denial of Compass Bank’s

motion to certify the question of whether Texas uses an actual

knowledge test or a foreseeability test for negligent

misrepresentation claims against accountants. The Texas Supreme

Court in McCamish, Martin, Brown & Loeffler v. F.E. Appling

Interests, 991 S.W.2d 787 (Tex. 1999), held that attorneys could be

subject to a negligent misrepresentation claim under Section 552 of

the Restatement (Second) of Torts with no requirement of privity.

Id. at 795. The court stated that “a section 552 cause of action

is available only when information is transferred by an attorney to

a known party for a known purpose.” Id. at 794. Thus, the court

applied the actual knowledge test to attorney negligent

misrepresentation cases.

The main case which Compass Bank relies on for its assertion

that foreseeability is the proper standard to use for accountant

negligent misrepresentation cases, Blue Bell v. Peat, Marwick,

Mitchell & Co., 715 S.W.2d 408, 412 (Tex. App.–Dallas 1986, writ

ref’d n.r.e.), strongly approved of a limited foreseeability test

for accountants:

To allow liability to turn on the fortuitous occurrence

that the accountant’s client specifically mentions a

person or class of persons who are to receive the

reports, when the accountant may have that same knowledge
 as a matter of business practice, is too tenuous a

distinction for us to adopt as a rule of law. Instead,

we hold that if . . . an accountant preparing audited

financial statements knows or should know that such

statements will be relied upon by a limited class of

persons, the accountant may be liable for injuries to

members of that class relying on his certification of the

audited reports.

Id. at 412. This Court has also previously acknowledged that Blue

Bell’s holding indicates that “Texas law is indeed less restrictive

than the Restatement.” Scottish Heritable Trust, PLC v. Peat

Marwick Main & Co., 81 F.3d 606, 614 (5th Cir. 1996) (noting

“actual knowledge of a particular plaintiff . . . is not necessary
2
if the defendant [accountant] should have had this knowledge”).

However, as sure as the majority feels the Texas Supreme Court

would apply the more restrictive actual knowledge standard to

accountants, I note that at least one federal district court has

gone the other way. In re Enron Corp. Sec., Derivative & ERISA

Litig., 284 F. Supp. 2d 511, 646 (S.D. Tex. 2003) (“Texas courts

2
I acknowledge that in an unpublished opinion, the same appeals court that decided Blue
Bell has now cited McCamish and applied an actual knowledge standard in the context of a
negligent misrepresentation claim against accountants. Tara Capital Partners I, L.P. v. Deloitte
& Touche, L.L.P., No. 05-03-00746-CV, 2004 WL 1119947, at *2-3 (Tex. App.–Dallas May
20, 2004) (unpublished). I think Tara Capital is a very weak reed for the majority to rely upon.

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have expanded the parameters of the tort of negligent

misrepresentation in § 552 to include not only those that the

defendant actually knows will receive the misrepresentation, but to

those the accountant should know will receive it.”) (citing Blue

Bell, 715 S.W.2d at 411-13).

Because this Court has the sound discretion to certify

questions, Patterson v. Mobil Oil Corp., 335 F.3d 476, 487 (5th

Cir. 2003), and in my judgment there is not sufficient controlling

guidance from the Texas Supreme Court in McCamish, I would certify

this question. In my view, certifying the question to a state

supreme court is a preferable course of action to our trying to

make an Erie guess as to the question of state law involved.

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