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Michigan Legislature Amends Accountants Privity Act

Lawrence R. Donaldson
08.08.2012

Michigan Certified Public Accountants (CPAs) are now better protected against malpractice and negligence claims filed by non-clients with a recent revision to what has become known as the "privity act," MCLA 600.2962. 

In 1995, the Michigan Legislature passed an act limiting suits against CPAs to three instances: 1) claims by a client; 2) claims of fraud or intentional misrepresentation by anyone, and 3) claims by a non-client in situations where the client and the CPA both identify in writing the non-client who is going to rely on the CPA’s professional accounting services.

The writings referred to in the third instance became known as “privity letters,” which means they put the non-client and the CPA in “privity” with each other (connecting two parties, each having a legally recognized interest in the same matter). This would give the non-client standing to sue the CPA. The intent of the original act was to put the CPA on notice, before agreeing to take on an engagement, that someone other than his/her client is going to rely on the services being sought.

Since then, non-clients have tried to expand their right to bring suit by claiming a number of things intended to put the non-client into the first (client) category. They have claimed assignment of the claim from the client to the non-client (i.e., a bank or other lender) to include foreclosure against the client’s assets by a lender; writings, including emails sent by someone other than the client to the CPA; and writings sent after the engagement in question was begun or even after its completion. These attempts sought to erode what the Legislature intended to be a “bright line” test – no writings, no non-client claims.

Recently, a trial court ruled that emails to the CPA from an outside independent contractor, (i.e., regarding a lender relying on the CPA’s professional services), were held to be sufficient to allow the non-client lender to sue the accountant, even though some of them were sent during and after the engagement, and none of them were signed by the client.

In response, the author of this Rapid Report recommended to the Michigan Association of Certified Public Accountants (MACPA) that it seek revision of the act to make sure the original intent of the legislation was upheld. The MACPA did. With the efforts of the Rapid Report author, in conjunction with Plunkett Cooney’s Professional Liability Practice Group Leader Michael Ashcraft and MACPA Vice President John Lindley, on June 25, Governor Rick Snyder approved the passage of PA 268 of 2012.

The revised statute now confirms that a non-client does not have standing to sue based on any of the following: 

  • assignment of the claim by the client to a non-client;

  • voluntary surrender of assets by the client or acquisition by a non-client through foreclosure or some kind of security agreement with the client;

  • writings signed by someone other than the client personally (individual) or by an officer/manager/member (entity); or

  • writings sent after the engagement has begun. 

If you have any questions regarding the privity act, contact the author of this Rapid Report, your Plunkett Cooney attorney or any member of the firm’s Professional Liability Practice Group. 

Rapid Reports are distributed by the firm of Plunkett Cooney. Any questions or comments concerning the matters reported may be addressed to Michael P. Ashcraft, the author or any other members of the practice group. The brevity of this update prevents comprehensive treatment of all legal issues, and the information contained herein should not be taken as legal advice. Advice for specific matters should be sought directly from legal counsel. Copyright © 2012. All rights reserved PLUNKETT COONEY, P.C.

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