Our office completed an accounting malpractice case which also obtained a favorable ruling from the trial court permitting us to go forward with a punitive damage claim against the accountant. Specific facts were presented to the trial court that showed a reasonable basis to believe that the accountant’s conduct was willful, wanton, or malicious. In accounting negligence, the defense typically claims that the accountant wasn’t asked to do an audit, and therefore is not responsible for the failure to notice or report any information concerning irregularities. This litigation was favorably resolved because we were able to show that the accountant knew or should have known of gross irregularities in the financial affairs of the business, and yet the accountant did nothing to warn the owners of the business.
The trial judge had an opportunity to rule on a number of the traditional defenses asserted by accountants in these types of cases. Both the assumption of the risk and statute of limitation defenses were stricken. The claim that the losses were due to third-party misconduct was limited to the instance where the accountant would have to show that the sole cause of the loss was the third-party misconduct. With respect to the usual accountant defense of contributory negligence on the part of their client, the court only allowed the defense to go forward because South Dakota is a comparative negligence state. Those states that use contributory negligence do not allow this defense.