Opinion
No. 01 C 2477
December 26, 2001
MEMORANDUM OPINION AND ORDER
Plaintiffs Jeffrey Porter and Jeffrey Porter General Contractors, Inc. (collectively "Porter") filed a complaint alleging that, under Indiana law, Defendant D.M. Siegel ("Siegel") was negligent when he provided professional accounting services. The parties have consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636 (c). This matter is presently before this Court on Defendant's Motion to Dismiss Plaintiffs' First Amended Complaint (Docket Entry #15). For the following reasons, Siegel's motion to dismiss is DENIED.
Legal Standard
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of the complaint, not to decide the merits of the case. In considering a motion to dismiss, the court must construe the complaint in the light most favorable to the plaintiff, accepting as true all well-pleaded facts and allegations. See Help At Home, Inc. v. Medical Capital, L.L.C, 260 F.3d 748, 752 (7th Cir. 2001). This Court will not dismiss a complaint for failing to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" Conley v. Gibson, 355 U.S. 41, 45-46 (1957). On a motion to dismiss, the court cannot consider matters outside the pleadings. Fed.R.Civ.P. 12(b); Caner v. Stanton, 405 U.S. 669, 671 (1972) (per curiam).
Background
Porter is a general contractor and a member of Plumbers Local Union 130 ("the union"). To determine whether he paid the necessary contributions, the union required Porter to submit his records for an audit. The union hired Siegel to perform the audit. According to the complaint, Siegel had "actual knowledge" that Porter was a union member, that Porter would be relying on the audit, and that the audit was partially for Porter's benefit. Based on Siegel's report, the union obtained an $89,000 judgment against Porter. Porter alleges that Siegel breached his duty of care, causing Porter damages.
Discussion
Siegel argues that this Court should dismiss Porter's complaint because (1) Porter's complaint concedes that Porter cannot establish the elements of a negligence action under Indiana law, and (2) Porter's suit is barred by the doctrine of res judicata.
1. Negligence under Indiana law
To prove negligence under Indiana law a plaintiff must establish (1) a duty on the part of the defendant to conform his conduct to a standard of care arising from his relationship with the plaintiff (2) a failure of the defendant to conform his conduct to the requisite standard of care required by the relationship, and (3) an injury to the plaintiff proximately caused by the breach. Webb v. Jarvis, 575 N.E.2d 992, 995 (Ind. 1991); City of Indianapolis Housing Authority v. Pippin, 726 N.E.2d 341, 345 (Ind.Ct.App. 2000). Whether a duty of care exists is a question of law. Webb, 575 N.E.2d at 995; Pippin, 726 N.E.2d at 345. In analyzing whether a duty exists, Indiana courts balance three factors:
(1) the relationship between the parties, (2) the reasonable foreseeability of harm to the person injured, and (3) any public policy concerns. Webb, 575 N.E.2d at 995; Pippin, 726 N.E.2d at 345. Generally, a duty between a professional and another person requires privity. See Webb, 575 N.E.2d at 995 (noting that the duty of a physician to his patient arises from the contractual relationship between them). Indiana courts, however, recognize an "actual knowledge" exception to the privity requirement. Applying the actual knowledge exception to accountants, the Indiana Court of Appeals stated the following:
[B]efore accountants may be held liable for negligence to non-contractual parties who rely to their detriment on an inaccurate financial report, certain prerequisites must be satisfied. First, the accountant must have been aware that the financial reports were to be used for a particular purpose or purposes. Second, a known party or parties were intended to rely upon the financial report. Third, there must have been some conduct on the part of the accountants linking them to that party or parties, which evidences the accountant's understanding of that party or parties' reliance.First Community Bank and Trust v. Kelley, Hardesty, Smith Co., 663 N.E.2d 218, 223-24 (Ind.Ct.App. 1996); see also Webb, 575 N.E.2d at 996 ("[A] profession owes no duty to third persons unless the professional had actual knowledge that those persons would rely on his rendering of professional services."); Essex v. Ryan, 446 N.E.2d 368, 372-73 (Ind.Ct.App. 1983); Ackerman v. Schwartz, 947 F.2d 841, 846 (7th Cir. 1991); Toro Co. v. Krouse, Kern Co., 827 F.2d 155, 161 (7th Cir. 1987).
In this case, Porter does not claim that he hired Siegel to provide accounting services. However, he does allege that Siegel "had actual knowledge that plaintiff was a member of [the union], that as a member of said union, plaintiff would be relying on defendant's rendering of professional services, and that the professional services provided by defendant were, in part, for the benefit of plaintiff." Therefore, Porter's complaint states a claim of negligence under the actual knowledge exception recognized by Indiana courts.
Siegel argues that facts not included in Porter's complaint demonstrate that the actual knowledge exception does not apply to this case. Siegel points out that Porter's complaint contains nothing more than the conclusory assertion that the actual knowledge exception applies. But a plaintiff in federal court does not need to plead facts. All that is required is "a short and plain statement of the claim that will provide the defendant with fair notice of the claim." Scott v. City of Chicago, 195 F.3d 950, 951 (7th Cir. 1999) ( citing Leatherman v. Tarrant County Narcotics Intelligence Coordination Unit, 507 U.S. 163, 168 (1993)). To meet this liberal standard, a plaintiff may plead legal conclusions as long as they allow the defendant to understand the gravamen of the plaintiffs complaint. Jackson v. Marion County, 66 F.3d 151, 154 (7th Cir. 1995); see also Bennett v. Schmidt, 153 F.3d 516, 518 (7th Cir. 1998) (noting that all a Title VII complaint needs to state is "I was turned down for a job because of my race."). Moreover, this Court cannot consider facts outside the face of the complaint — for example, facts indicating that Porter did not rely on Siegel's audit — for purposes of the present motion. Therefore, Siegel's argument focusing on facts not included in Porter's complaint is beside the point.
2. Res Judicata
The doctrine of res judicata promotes judicial economy by precluding parties from relitigating issues that were or could have been raised in a previous action. Res judicata bars a second suit when there exists (1) an identity of the causes of actions, (2) an identity of the parties or their privies, and (3) a final judgment on the merits. Kratville v. Runyon, 90 F.3d 195, 197 (7th Cir. 1996). According to Siegel, Porter's present suit is simply a collateral attack on the previous judgment that awarded $89,000 to the union. Siegel contends that if Porter wanted to contest the correctness of the accountant's audit then he should have brought it up in the prior proceeding. This Court disagrees. The prior litigation between the union and Porter dealt with Porter's obligation to pay union contributions. The current action is between Porter and Siegel and concerns Siegel's alleged negligence, i.e., the extent of Siegel's duty to Porter under Indiana law. Porter does not seek to disturb the judgment for the union. He aims only to collect money damages for Siegel's negligence. Assuming Siegel was negligent, he cannot avoid liability by hiding behind the prior judgment for the union. See Durkin v. Shea Gould, 92 F.3d 1510, 1516-17 (9th Cir. 1996) (holding that class members may sue attorneys for malpractice even though class settlement had been approved in fairness hearing). Moreover, Porter's negligence action did not even accrue until the judgment was entered in the prior case. See Silvers v. Brodeur, 682 N.E.2d 811, 813-14 (Ind.Ct.App. 1997) (stating that claim does not accrue until some ascertainable damage has occurred); see also Durkin, 92 F.3d at 1516 (holding that res judicata did not bar suit because malpractice action against class action counsel did not accrue until settlement was final). Accordingly, this Court concludes that Porter's suit is not barred by the doctrine of res judicata.
Conclusion
For the foregoing reasons, Siegel's motion to dismiss is DENIED.