Procedural Posture

Appellant certified public accounting firm challenged a jury verdict and judgment, which was rendered by the Superior Court of San Diego County (California) for appellee ambulance company in its action for professional negligence and breach of contract.

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Overview

A jury rendered a verdict against appellant certified public accounting firm acting as auditors of appellee ambulance company for committing professional negligence by withdrawing prematurely from an audit, breaching the parties’ engagement contract by not issuing an audit opinion, and negligently interfering with appellee’s prospective economic advantage. Appellee had threatened appellant and demanded that appellant assist appellee to perpetrate a fraud upon a prospective investor. The trial court failed to instruct the jury concerning the specific applicable professional standards that governed appellant as auditors. The court held that the trial court’s jury instruction effectively defined as negligent any resignation by appellant which unduly jeopardized appellee’s interests or occurred before appellee had a reasonable opportunity to retain a successor auditor, regardless of whether appellant had good cause to resign. The court found that this erroneous instruction on resignation foreclosed jury consideration of both the primary issue of liability and the primary defense that appellant had good cause to resign consistent with professional standards.

Outcome

The court reversed the judgment in favor of appellee ambulance company, holding that the trial court failed to accurately state the specific professional standards applicable to appellant certified public accounting firm as auditors. The court held that this failure resulted in the entire absence of instructional support for the defense theory of good cause to resign, and foreclosed a verdict for defendants on such theory of defense.