SURETY’S NEGLIGENT MISREPRESENTATION CLAIM AGAINST AUDITOR BARRED BY LIMITATIONS

Weaver & Tidwell, L.L.P. v. The Guarantee Co. of North America USA
Dallas Court of Appeals, No. 05-12-00750-CV (April 8, 2014)
Justices O’Neill, Lang-Miers (Opinion), and Evans
Guarantee issued a performance bond to a construction company (J&V) in May 2006 after receiving J&V’s audited financial statements prepared by Weaver. J&V defaulted on its construction contract, and Guarantee incurred losses honoring its performance bond. Guarantee sued Weaver in August 2009 for negligent misrepresentation and prevailed in the trial court, but the Dallas Court of Appeals reversed and rendered, holding the claim was barred by limitations.

After defaulting on its construction contract, J&V sued Weaver in September 2008 for breach of fiduciary duty, fraud, and accounting negligence. The claim was ordered to arbitration as required by Weaver’s engagement letters. Weaver ultimately prevailed in arbitration, securing an order that J&V take nothing from Weaver and pay Weaver almost $800,000 in attorneys’ fees and expenses. Meanwhile, in August 2009, Guarantee sued Weaver to recover its losses on its bond. Weaver’s motion to compel arbitration was denied, and that ruling was affirmed on an interlocutory appeal. Weaver then counterclaimed for a declaratory judgment that Guarantee was liable for Weaver’s arbitration award against J&V. The trial court dismissed the counterclaim on summary judgment.

After a bench trial, the court found Guarantee had justifiably relied on Weaver’s negligent misrepresentation of J&V’s finances, and awarded $2.6 million in damages. The court also found Weaver’s limitations defense failed because Guarantee had not discovered the May 2006 audit was false or misleading “until long after the fact.”

The Court of Appeals reversed, holding that Guarantee’s claim accrued in May 2006, when Guarantee issued its first bond in reliance on the audit. The Texas Supreme Court held in 1997: “A person suffers legal injury from faulty professional advice when the advice is taken.” And although the discovery rule might have tolled limitations, Guarantee’s reliance on that rule failed because it did not obtain an explicit finding by the trial court identifying “when Guarantee knew or should have known of the facts giving rise to Guarantee’s claim.” The two-year limitations period therefore expired in May 2008.

The Court of Appeals affirmed the summary judgment dismissing Weaver’s counterclaim, holding there was no evidence that: (1) J&V had assigned its rights and obligations vis-à-vis Weaver to Guarantee; (2) Guarantee had acted as a contractual or equitable subrogee of J&V; (3) Guarantee was liable under offensive collateral estoppel; or (4) Guarantee was J&V’s alter ego.

Neither party recovered anything from the other.

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