Stratton v. Peat, Marwick, Mitchell & Co.

Opinion

NEWSOM, J. Appellants and cross-complainants Harry W. Stratton and Don L. Van Eeghen appeal from a summary judgment entered on June 11, 1984, in favor of respondent and cross-defendant, Peat, Marwick, Mitchell & Co. pursuant to Code of Civil Procedure section 437c.

The original complaint in this action was filed by plaintiff McPhail’s, Inc. (hereafter McPhail’s) on November 6, 1981, against appellants Stratton and Van Eeghen, alleging breach of sales contract, fraud and misrepresentation in connection with appellants’ sale of their business, Miller’s Home Appliances, Inc., to McPhail’s.

On December 30, 1981, appellants filed a cross-complaint against respondent Peat, Marwick, Mitchell & Co. (hereafter PMM), alleging causes of action for indemnity, breach of contract and negligence with respect to accounting services performed by PMM. At the same time, appellants filed a separate action against PMM in the superior court for the County of Santa Clara, case No. 490558, alleging breach of contract and negligence based upon the same transactions. The parties subsequently agreed to sever the breach of contract and negligence claims in the cross-complaint and to consolidate them with case No. 490558, leaving only the indemnity claim in this case.

On April 13, 1984, respondent, PMM, filed a motion for summary judgment on the cross-complaint for indemnity. The motion was granted solely on the basis that the cross-complaint was barred by the good faith settlement between PMM and McPhail’s.

The facts pertinent to this appeal may be summarized as follows.

Appellants were the sole stockholders in Miller’s Home Appliances, Inc., a corporation which operated an appliance store in San Jose. In April 1980, appellants began to negotiate the sale of Miller’s to McPhail’s, a major appliance retailer in Marin County. A contract of sale was executed on August 4. 1980.

[289]Before the sale was completed, appellants and McPhail’s jointly hired respondent, PMM, to review Miller’s unaudited financial statements for the months of April, May and June of 1980. McPhail’s sought the review in order to determine the appropriate value of Miller’s. The financial statements had been prepared by Miller’s employees.

In its letter of engagement, respondent disclaimed responsibility for the accuracy of the financial information provided by Miller’s employees, stating: “[o]ur engagement to review the financial statements of Miller’s cannot be relied upon to uncover errors in the underlying financial information incorporated in the financial statements or irregularities, should any exist. However, we will inform you of any such matters that come to our attention.”