11 Jan Sauce Supply also knew

Week 2 discussion

DQ1 Wendy Wanderer

Derek Dirt operates a home-based business selling herbs and supplements. He frequently receives new samples and is constantly discarding unwanted samples, as well as packaging, old files, and other junk on a back yard trash heap that accumulates between trash pick-ups. Little Wendy Wanderer, age five, who lives next door, sees what, to her, promises to be a nice toy among Derek’s trash. Upon coming closer to the trash heap, Wendy is bitten by a rat. She screams and then faints. Her nearby mother calls an ambulance, which, on the way to the scene, jumps a curb and strikes Paul Pedestrian, seriously injuring him. Wendy requires a series of rabies shots. Except for some bad dreams, Wendy apparently recovers. Derek and Wendy are both citizens and residents of Ohio. Paul, who is a citizen and resident of Texas, was visiting friends in Ohio when the ambulance struck him.

Does Wendy have a solid basis for suing Derek for her injuries?

Who might be liable to Paul Pedestrian?

What types of damages could Wendy recover?

If Wendy sues Derek, in what state(s) could she sue, and in what court (federal or state) could she properly file the suit?

If Paul sues Derek, in what state(s) could he sue, and in what court (federal or state) could he properly file the suit?

DQ2 Bad Bar-B-Q

Over many years, Jake and Jo Bob built up a barbeque ribs business, Hambones, Inc., which caters picnics and parties and sells ribs and corn at county fairs. They have several creditors, including Sauce Supply and First State Bank.

Two years ago, in reliance on an audit of the company’s books prepared by Hambones, Inc.’s accounting firm, Able & Henderson, First State Bank made a loan to Hambones, Inc. It now appears that the audit failed to disclose financial improprieties in Hambones, Inc.’s maintenance of its books: Certain liabilities were being carried off the books, causing Hambones, Inc.’s bottom line to appear more favorable than it really was. The decision to carry the liabilities off the books was made by Jake and Jo Bob, but there is now an argument as to whether a more careful audit would have uncovered the liabilities. Jake told the accounting firm that the audit was being done at the bank’s request in order for the loan to be approved, and that it was really important that the company receive a clean bill of health from the audit. Able & Henderson didn’t want to lose Hambones, Inc. as a client.

Sauce Supply also knew that Hambones, Inc. had been audited and heard from Jake and Jo Bob that the auditors were very satisfied with Hambones, Inc.’s financial position. Jake gave Sauce Supply’s president, Sandy Saucy, a copy of the audit report. Able & Henderson had no knowledge of these statements, or that Sauce Supply had received a copy of the audit report.

What standard of care applies to Able & Henderson’s accounting work for Hambones, Inc.?

Does Able & Henderson face any negligence liability to First State Bank or Sauce Supply in a state that has adopted the Ultramares rule?

In a state that has adopted the Restatement rule?

In a state that has adopted the Reasonably Foreseeable User rule?